Chancellor Jeremy Hunt’s 2022 Autumn statement focused on prioritising stability, growth and public services but what does this mean for your employees’ pay and pensions?
The chancellor announced that the tax take from his fiscal statement will increase by just 1% over the next five years, and still ensure the UK maintains the most generous tax-free allowances of any G7 country. The thresholds and allowances previously announced for the highest earners however are set to change.
The chancellor was somewhat muted on the pensions front, with the only mention being the reinstatement of the state pension ‘triple lock’.
What are the key tax changes, what is the ‘triple lock’ and how does it affect the state pension?
How will the tax changes affect employees?
It’s good news in relation to tax bands for low earners – they haven’t been reduced so the income tax personal allowance is frozen at £12,570 until April 2028. Only employees earning more than this will pay tax and, of course, they will only pay tax on anything above £12,570*
*For higher earners, the £12,570 personal allowance will be reduced by £1 for every £2 of ‘adjusted net income’ earned between £100,000 and £125,140, again frozen until 2028.
The basic rate tax band will remain the same until 2028. For higher earning employees, the threshold for the 45% additional rate tax will be cut from £150,000 to £125,140 from April 2023.
Unlike the state pension however, the tax thresholds have not been increased in line with inflation.
What is the triple lock?
Introduced in 2010 by the Conservative-Liberal Democrat coalition government, triple lock guarantees that, each year, the state pension will rise by whichever rate is the highest of either:
- Average earnings
- Inflation – as measured by the Consumer Prices Index (CPI), or
- 5%
As an example, if average earnings rose by 3% and inflation rose by 5%, then the state pension would be increased by 5%.
Why was the triple lock system introduced?
The triple lock was introduced to protect pensioners against the impact of inflation on money.
If the state pension didn’t increase at least in line with inflation, then you wouldn’t be able to buy as many goods and services with your pension as you did before.
Why was the triple lock reinstated in the Autumn Budget 2022?
Following the coronavirus pandemic, average wages were rising by over 8%, and sticking with the triple lock rules would have meant the state pension would also need to rise by 8% – an unprecedented increase which the government never saw coming!
As a result, the government announced the suspension of the triple lock for the 2022-23 tax year to ensure fairness between pensioners and taxpayers.
Retention of the triple lock was a Conservative Party manifesto commitment and has been the topic of much debate over affordability recently, however, in his 2022 Autumn Statement, the Chancellor confirmed that the triple lock will be reinstated from April 2023.
This means that, for the 2023-24 tax year, the state pension will rise in line with September’s inflation rate (10.1%) a formula outlined in the state pension triple-lock guarantee. For some people, the state pension will be worth over £10,000 next year!
In conclusion, this may be good news for some employees in relation to their pay and pension but as inflation rises, so does the cost of living. As an employer, it’s important to be aware of the changes and the potential impact on employees, not only financially but emotionally too.
Employees can check their income tax with their Government Gateway ID on the GOV.UK website
Employees can see how much state pension they’ll get and when using the GOV.UK State Pension Forecast
For more information about unburdening your business from payroll and pension compliance visit our SMART Employment page and read more about supporting your employees’ financial wellbeing, emotional wellbeing and physical wellbeing.
Amrik Birdi, Pension Consultant at Growth Partners
Amrik has a wealth of knowledge in pensions having joined Growth Partners from KPMG where he was responsible for advising companies and trustees on independent DC provider procurement exercises, DC investment strategy review, DC pensions strategy review, automatic enrolment compliance, and meeting ongoing governance requirements. Amrik spent three years before this as a Pensions Guidance Specialist at Pensions Wise helping members understand their pension and retirement options, empowering them to take control of their retirement journey. With a Diploma in Regulated Financial Planning and Certificate in DC Governance, combined with a Degree in Economics, Amrik is a fully qualified pensions consultant and able to offer strategic support to our clients on their options for workplace pension schemes and auto-enrolment.