Article Five Spring Budget takeaways for you and your clients

On 6 March, the Chancellor of the Exchequer, Jeremy Hunt, delivered the UK Government’s Spring Budget for 2024 to a rowdier-than-usual House of Commons.

As the last Budget before the upcoming General Election, many viewed this as a big opportunity for the Chancellor to win favour with the UK public and spring a few surprises. In the end, he proceeded to present a series of announcements that included a mixed bag of the widely predicted and a bit unexpected.

Here I highlight some of the biggest changes from the Chancellor’s speech and how they could affect your clients:

1. National Insurance cut again to 8%
2. A new UK ISA
3. An update on the Value for Money Framework
4. A brief mention on the new ‘Pot for Life’ model
5. Big changes to help UK families

1. National Insurance cut again to 8%

Having announced a 2% cut to the employee National Insurance (NI) rate as part of the Autumn Statement in November 2023, there was a sense of déjà vu when the Chancellor shared that there will be a further 2 percentage points reduction from 10% to 8%. The Class 4 NI contribution rate for the self-employed was also cut from 8% to 6%.

These latest changes come into effect from 6 April, with the Government calculating that the consecutive NI cuts will save the average worker earning £35,400, over £900 a year.

Some of your clients might be encouraged to invest this boost to take-home pay, perhaps to address inadequate retirement savings.

There’s also the big question of what this additional cut means for the State Pension, which is, of course, funded by National Insurance contributions from the UK’s working population. NI cuts mean less is available for paying State Pensioners their retirement income. And remember, the State Pension received a huge 10.1% increase last year, as well as being set for a bumper 8.5% increase this April, both of which were calculated using the much-debated Triple Lock.¹

With NI rates dropping but the amount paid out to State Pensioners increasing, along with the UK’s aging population, it’s worth considering what the State Pension could look like in the future. Longer term changes to the Triple Lock and fewer inflation-busting increases could mean that your clients will need to be less reliant on the State Pension for their retirement income, making the most of private pensions to fill any gaps.

2. A new UK ISA

One of the Chancellor’s headline announcements was the plan to launch another new ISA product, this time focused on investing in UK business. This would build upon the UK growth initiatives introduced as part of the Chancellor’s Mansion House Compact and Autumn Statement last year. No dates have been announced yet, but the Government has started a consultation into the product’s design, administration and timeline.

Such a product would create new, tax-efficient investment opportunities for your clients to consider. This is especially true for those who max out their annual ISA limit, with a proposed additional £5,000 allowance on top of the existing £20,000 ceiling.

As always, you’ll play a key role in helping clients to manage their investment decisions in a manner that supports their goals. In doing so, the introduction of a UK ISA will raise new questions around asset allocation and diversification. Any provider considering offering this will need to be very clear on its niche target market and whether it can be delivered at a charge offering Consumer Duty value for money.

3. An update on the Value for Money framework

The Chancellor also used the Budget as an opportunity to make some new announcements on the proposed Value for Money framework. This is a joint initiative from the DWP, FCA and TPR, aiming to improve transparency and comparability of schemes’ value. By using a number of metrics, primarily relating to investment performance, the goal is to ensure those who run pension schemes are focused on securing good outcomes for members.

From 2027, all Defined Contribution (DC) pension funds will have to publish the percentage of their investment in UK businesses, as well as their costs, net investment returns and other metrics. Schemes will also have to compare themselves against at least two other larger schemes with assets above £10 billion.

Importantly, the regulators will be given new powers, including to stop poorly performing schemes from taking on new business.

The move away from a focus purely on charges to a more holistic view of value is welcome and long overdue, and we believe will lead to better member outcomes.

The FCA is due to publish its consultation on the Value for Money Framework rules in the Spring. This will throw more light on what schemes will need to do to demonstrate that they are offering value for money, giving an opportunity for you to discuss this with your employer clients.

On a side note, it’s interesting to consider how the Chancellor’s emphasis on investment performance differs from the more customer service-heavy focus of the FCA’s Consumer Duty. If you advise trustees, this will be a key area going forward.

4. A brief mention of the new ‘Pot for Life’ model

Not quite the big announcement some were watching out for, but the Chancellor did confirm the Government’s commitment to exploring the lifetime provider model for DC pension schemes.

Also known as ‘pot for life’, the strategic long-term aim is to stop the creation of multiple new pension pots by enabling future pension contributions to be paid into lifetime providers. The key difference from the current system is not building up funds within a new pension with each new employer you work for.

We’ve raised major questions about the impact this could have on employers, who often go above and beyond the 8% auto-enrolment minimum to help retain and attract staff. If employers are removed from the heart of providing workplace pensions, they may be less inclined to support member saving, which could hurt pension engagement and retirement income adequacy.

The ‘pot for life’ model isn’t off the table, but the Government wants to do some research with employers and employees to understand how they might react to the concept. It’s one that might appeal to a highly engaged, higher-earning minority, many of whom could look to you for your expertise.

5. Big changes to help UK families

Finally, there was good news for parents, as the Chancellor announced that the income threshold before beginning to pay the High Income Child Benefit Charge will be increased from £50,000 to £60,000 per annum from this April. As a result, more people will receive more child benefit, and any of your clients affected may look to you for help in understanding their options.

From 2026, the income threshold will also no longer be based solely on the family’s highest earner, instead being based on the joint household income. This should help to avoid situations where couples with one higher earner and one lower earner don’t qualify, while a household with two more equal earners does.

Taking things forward

Only time will tell how big an impact this year’s Spring Budget will have, but it will certainly have raised some early questions among advisers and your clients across the UK.

For more articles on the biggest trends and activity affecting you and your clients, you can visit our Insights page. You can also visit our retirement advice hub to read the latest edition of NextWealth’s Managing Lifetime Wealth report, sponsored by Aegon.