Rachel Reeves MP, the Chancellor of the Exchequer, delivered the Autumn Budget on 30 October 2024. In the weeks before the Budget, speculation ran rife on what could be announced on issues such as taking tax-free cash from a pension arrangement, tax-relief on pension contributions and changes to the Annual Allowance.
In the weeks before the Budget, speculation ran rife on what could be announced on issues such as taking tax-free cash from a pension arrangement, tax-relief on pension contributions and changes to the Annual Allowance. Whilst the Chancellor decided not to make sweeping changes to pensions taxation, the Budget did include some pensions points. The table below sets out some of what was announced that relates to pensions and considers the implications of each announcement for pension sharing on divorce.
| Announcement | Details | Implications for pension sharing |
| Pensions and Inheritance Tax (IHT) | From April 2027, inherited defined contribution (DC) pension pots and most death benefits from registered pension schemes will be included in the value of a deceased’s estate for IHT purposes. HMRC are seeking views on the process to implement the changes. | To the extent that these changes lead individuals to access funds sooner, this could result in more crystallised funds forming part of the available pension assets on divorce. The recipient of a pension credit on divorce, that arises from a share of crystallised funds will not be able to take any tax-free cash from those funds. Depending on what pension is being shared, pension sharing may impact on IHT plans of the recipient of a pension credit (or may require the putting in place of such plans). Specialist advice may be required in these situations. |
| Increase to State Pensions | Under the triple-lock uprating formula, the single-tier State Pension and the basic State Pension will increase by 4.1%, with effect April 2025. This is in line with the increase in Average Weekly Earnings from May to July 2024 . | Any solution that takes account of State Pension entitlements will need to do so on a consistent basis, i.e. all State Pension expressed in either 2024/25 terms or 2025/26 terms (i.e. after the application of the April 2025 increase). |
| Employer National Insurance Contributions (NICs) | Two changes for Class 1 NICs for employers from April 2025. Firstly, the threshold from which NICs is payable will reduce from £9,100 pa to £5,000 pa and secondly, the contribution rate will increase from 13.8% to 15.0%. | The making of pension contributions by salary sacrifice may become more popular to reduce the NI bill. Under pension salary sacrifice arrangements, all contributions to a pension appear to have been paid by the employer. When apportioning pensions, with reference to contributions made, all contributions should be considered, regardless of source. In some workplace schemes, these salary sacrifice arrangements have names such “Smart Pension” or “Smart Contribution”. This should not be confused with the holding of a Smart workplace pension arrangement or a pension pot in the Smart Pension Master Trust. |
| Mineworkers Pension Scheme | Following privatisation, the government became guarantor for the scheme. An investment reserve fund was set up using part of the scheme’s funds at the time. The investment reserve was to be run down over a period of 25 years through transfers to government. The reserve fund will now be transferred to scheme members. This will result in scheme members becoming entitled to a bonus amount of pension. | Settlements should take account of this uplift in pension entitlement (equal to 32% of guaranteed pension), as well as all previous bonuses, for members of the Mineworker Pension Scheme. In cases that have not settled, consideration should be given to revisiting pension sharing to take account of the new bonus. |
None of the above is reflective of financial and/or tax advice and should therefore not be relied upon as being such advice. MCL are unable to provide such advice. Advice should be taken rom regulated individuals who are able to provide it.
Please get in touch if you would like to discuss any of the above issues.
Rahim Rashid
Principal Report Writer
