5 big pension changes coming in 2024 - including state pension increase
There are huge pension changes coming next year which could affect how much money you have in retirement.
The state pension is due to rise - and it should hopefully be easier to purchase National Insurance contributions so you can increase your state pension. Previously proposed changes to auto-enrolment may also finally come into force, and more information is expected on how a “pension pot for life” could work, after proposals were announced in the Autumn Statement.
Finally, the Lifetime Allowance is due to be abolished this year, in what will be good news for those with larger pension pots. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, explains everything you need to know.
State pension to rise
The state pension will rise by 8.5% in April, in line with the triple lock promise. The full new state pension is currently worth £203.85 per week and this will rise to £221.20. You claim the new state pension if you’re a man born on or after 6 April 1951, or a woman born on or after 6 April 1953.
The full basic state pension is currently worth £156.20 per week and this will rise to £169.50. You claim the basic state pension if you're a man born before 6 April 1951, or a woman born before 6 April 1953.
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Ms Morrissey said: "After a tough year of high prices and squeezed budgets, this inflation busting increase will be welcomed by many. However, with this being the second large increase in a row, debate over how to contain the burgeoning cost of state pension will continue with calls to reform the triple lock. As we head towards a general election it will be interesting to see whether maintaining the triple lock forms part of any of the key party manifestos."
Pension lifetime allowance abolished
The pension lifetime allowance is due to be scrapped from April 2024. The lifetime allowance is the total amount you can build up in all your pension savings without incurring an extra tax charge.
It is currently set at £1,073,100 for most people. Jeremy Hunt removed the tax charges in his Spring Budget and said the limit would be scrapped altogether from April 2024. There will now be a £268,275 cap on the tax-free lump sum you can take from your pension.
Ms Morrissey said: "This is great news for those with large pension pots who faced tax charges if they breached the £1,073,100 limit. Its removal sounds easy in practice, but the reality is that the industry has to get to grips with a complex set of rules before this can happen. The other concern is that Labour has said they will reinstate the allowance if they get into Government though it is to be hoped that their stance will soften in the coming months."
Pension pot for life
Jeremy Hunt announced a consultation to introduce the option for workers to set up a “pension pot for life” as part of his Autumn Statement. These reforms would allow people the ask their employer to pay their pension contributions into the pension of their choice.
It would lower the risk of people having multiple, smaller pension pots, and losing track of their retirement cash. Ms Morrissey said: "This could go a long way towards solving the issue of lost pensions and puts the member firmly in control of their own pension planning. It will, however, take some time to work through so we would not see them introduced any time soon.
"The good news is that you can take steps today to take control of your pensions. Using the Pension Tracing Service to track down lost pensions could leave you much better off in retirement and you can make them easier to manage by consolidating them into a pension such as a SIPP that offers you more options."
Pension auto-enrolment extension
Auto-enrolment is where you're automatically placed into your employer’s workplace pension. Under the current rules, you must be between the age of 22 and the state pension age, and earn above £10,000, to be opted in by law.
But changes to the scheme will see workers auto-enrolled when they turn 18. The lower earnings limit - the minimum level of earnings on which you and your employer have to pay contributions - is also being abolished. The limit is currently set at £6,240.
Ms Morrisey said: "We had hoped to see a timetable for the extension of auto-enrolment in the Autumn Statement, but it was absent. Lowering the minimum age from 22 to 18, and allowing contributions from the first pound, will help more people build bigger pensions, particularly women and people in part-time work.
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"The Bill received Royal Assent in the Autumn, but we’ve seen no progress since. It’s to be hoped it is hovering near the top of the new pension minister’s in-tray for action in the New Year."
Changes to buying National Insurance contributions
HMRC has extended the deadline to purchase voluntary National Insurance contributions until April 5, 2025. Most people need 35 qualifying years on their National Insurance record to claim the full new state pension - although some will need more - and ten years to receive anything at all.
This means if you have gaps in your record, you may not receive a full new state pension later in life - leaving you potentially thousands of pounds out of pocket. The DWP is planning on setting up an online system where people can purchase voluntary contributions after their phone lines were jammed with people trying to get through.
Ms Morrisey said: "DWP phonelines rang red hot all year as people raced to meet the deadline to buy voluntary NI contributions for gaps going back to 2006. The resulting chaos prompted DWP to extend the deadline to April 2025 and to pledge to introduce an online system to reduce call wait times. No date has been set for its introduction, but it is expected in Spring.”
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