It’s never a dull moment in the UK pension world. Skybound Wealth’s Group Head of Pensions, Carla Smart, takes a look at some of the key changes that were introduced in the Autumn budget last year and considers what UK expats should be aware of in 2024 as the Spring Statement starts to feature in the press.
Triple Lock Maintained
First of all, the much debated and controversial triple lock was once again maintained. The basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2024 by 8.5% which means a yearly rise of £902 for pensioners. Whilst maintaining the triple lock is extremely costly to the government, with an imminent election approaching, the Conservative government chose to honour their commitment and based on comments from the Labour party, if and when they come into power, they also plan to protect this valuable benefit and have indicated that they would cut other budgets to ensure this is maintained.
Simplifying ‘Small Pot’ Pensions
In order to tackle ‘small pot’ pensions, the UK government is launching a consultation on a ‘lifetime provider model’ which would allow individuals to have contributions paid into their existing pension scheme when they change employer. Whilst there would certainly be benefits for the employees, the arrangement may cause challenges for the employers due to the complexities of administering this. The Mansion House reforms are to proceed - the government has proposed to establish a Growth Fund within the British Business Bank. In the budget, the Chancellor announced a £320 million plan that will help to drive innovation and unlock the first tranche of investment from these reforms. It will allow pension funds access to a diverse range of investment opportunities in the UK’s most promising businesses.
Lump Sum Death Benefit Allowance
Plans are afoot to introduce a 'Lump Sum Death Benefit Allowance' of £1,073,100.* which will apply on death before age 75. No tax will be payable up to this amount. However, amounts that are paid over and above this level will be subject to the beneficiaries’ marginal rate of income tax.If a Pension Commencement Lump Sum has already been taken, then this will be deducted from the 'Lump Sum Death Benefit Allowance’. In addition, the maximum PCLS that can be taken will be £268,275 (which is 25% of the last Lifetime Allowance).
For death after 75, there are no changes to death benefit taxation. Beneficiaries will continue to be taxed at their marginal rate of income tax.
Changes To QROPS
A new overseas transfer amount is being introduced for transfers to a Qualifying Recognised Overseas Pension Scheme (QROPS) from a UK Pension scheme. This is the equivalent of the 'Lump Sum Death Benefit Allowance' of £1,073,100. Any transfers over this amount would be subject to an 'Overseas Transfer Allowance’ of 25% on the excess over the LSDBA. It will not apply until 06/04/2024, so for any clients with larger pots that are considering transferring their pensions into a QROPS, there is still a small window of opportunity to make this switch. There is a lot to absorb here; and we’ll be keeping a close eye on what may unfold throughout the year with the Spring Budget, and a UK election on the horizon. There has already been much talk about a Labour government coming in and potentially re-introducing the lifetime allowance. Here at Skybound Wealth, we will continue to keep abreast of current rules and regulations to ensure our clients are well informed and can plan accordingly around that.
*Please note that this is still a live bill, so is subject to change as it passes through Parliament.