Jeremy Hunt delivered his second Autumn Statement as chancellor on 22 November 2023. While the headline news was cuts to National Insurance rates for employees and self-employed workers, there may have been less attention-grabbing changes that could make your finances easier to manage.
Read on to discover how ISA and pension changes might be useful to you.
1. ISAs are set to become simpler
ISAs were launched in 1999 to promote saving and investing in a tax-efficient way. Statistics suggest they’ve achieved that goal – according to the government, in 2021/22, 11.8 million ISAs were subscribed to, with around £66.9 billion added to accounts.
Yet, over the years, ISAs have become more complicated. New ISAs have been launched, including the Lifetime ISA, aimed at aspiring first-time buyers, and the Innovative Finance ISA, which allows you to invest in peer-to-peer loans that are typically higher-risk than traditional investments.
There are also rules around contributing to multiple ISAs during the same tax year and transferring between different providers. Key changes from April 2024 could help you manage your savings and investments in a way that suits you.
- Under current rules, you cannot usually contribute to two ISAs of the same type during the same tax year. For example, if you held two Cash ISAs, you’d only be able to contribute to one each year. From April 2024, you will have more flexibility and will be able to pay into multiple ISAs of the same type. This could mean you’re able to secure a more competitive interest rate or pay into both an easy access and fixed-term account.
- It is possible to transfer your ISA savings or investments to another provider. However, you must transfer all the money in the account. In the new tax year, partial transfers will be allowed. This step could provide you with more flexibility and the option to move your savings or investments to suit your needs.
Despite hopes that the annual ISA allowance would be increased, it wasn’t announced in the Autumn Statement. In 2023/24, the ISA allowance is £20,000, and £9,000 for Junior ISAs.
However, the changes could help you get more out of your money by allowing you to select a provider that’s right for you.
2. There are plans to reduce the number of pensions workers hold
Auto-enrolment means the majority of employees must be automatically enrolled into a pension by their employer, who must also contribute on their behalf.
It’s successfully encouraged more people to save for their retirement. Yet, it’s also created a retirement planning issue that you might face – managing multiple pension pots.
According to Zippia, the average employee stays with their employer for just 4.3 years. So, over your working life, you could end up accumulating multiple pensions.
This could cause issues for several reasons:
- It can make your retirement savings difficult to keep track of. Indeed, a report in FTAdviser, estimates there are almost 3 million “lost pensions” totalling £26.6 billion. Managing several pensions could mean you overlook some essential savings.
- Usually, your pension will be subject to an annual management fee. In some cases, paying fees on several small pensions could add up to more than the fee of a single, larger pension. So, holding several pensions may mean you get less out of your savings.
- Similarly, your pension will typically be invested. Again, a single, large pension that’s invested in a range of assets may deliver greater returns over the long term, particularly when investment fees are considered, compared to several small pots. However, keep in mind that investment returns cannot be guaranteed.
- As well as difficulty managing multiple pots during your working life, it can be challenging when you retire too. You might be unsure about which pot you should access first or how long each will last.
Changes to address this haven’t been implemented yet. However, Hunt announced a consultation with the aim of allowing workers to set up a “pot for life”. Under the plans, employees would be able to choose which pot their pension contributions are paid into. It could mean employees can retain the same pot throughout their careers, even when they change jobs.
The move could make it easier to manage your retirement finances.
If multiple small pensions are something you’re concerned about, there may be steps you can take now. Pension consolidation could mean you have fewer pensions to manage, but there are potential drawbacks too. For example, if your pension provides additional benefits, you’d lose these if you transferred the money to another provider.
We can provide tailored pension advice if you’d like to better understand how to make managing your retirement finances simpler.
Contact us to discuss what the Autumn Statement means for your financial plan
The chancellor made key announcements during the Autumn Statement that might affect your finances now or in the future. If you’d like to discuss what they mean for you, please contact us.
Please note: This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
