Six major pension changes coming in 2024 you need to know – including a pay rise
MILLIONS of people will see changes in 2024 that affect their pensions.
From rising payments to a new “pot for life” system, there’s a lot on the horizon.
It’s set to be a bumper year for both pensioners and workers alike.
Some of the changes were announced earlier this year as part of the Spring Budget, such as the scrapping of the Lifetime Allowance.
While others were confirmed just last month during the Autumn Statement such as the continuation of the triple lock.
We’ve rounded up all the changes set to hit in 2024, and what they mean for your money.
State pension increase
Millions of pensioners are set for a bumper rise of up to £901 a year to their state pension payments.
This is because Chancellor Jeremy Hunt confirmed in his Autumn Statement that pensions will rise by 8.5%.
This payment increase will kick in from April, 2024.
It means pensioners could get a weekly rise of £17.35 from £203.85 to £221.20 – equivalent to £901 a year.
It’s important to note though that this is for those entitled to a “full” new state pension.
How much individuals get is based on the number of qualifying years they’ve accrued.
Older pensioners who retired before April 2016 will get a weekly rise from £156.20 to £169.48, and an annual rise from £8,122.40 to £8,812.96.
Other elements of the old state pension system, mainly “additional” state pensions such as SERPS, will rise in line with the increase in CPI inflation for September which was 6.7%.
While it’s good news for those on a state pension, as their incomes will rise, the bumper boost could push some in to paying tax for the first time, experts have warned.
Pension Credit rise
Pension credit is a tax-free benefit designed to help with living costs if you are over the state pension age (currently 66) and on a low income.
Around 1.4million pensioners receive pension credit, but 880,000 who could be eligible are not claiming this extra financial help.
It is often described as a “gateway benefit” because even a small award can provide access to a wide range of other benefits.
This can include help with housing costs, council tax or heating bills and is in addition to the extra cost of living payments.
Pension credit standard minimum will also rise by 8.5%, like the state pension.
This means payments will increase from £201.05 to £218.15 for single households.
Scrapping of lifetime allowance
The lifetime allowance (LTA) on pension savings is being scrapped from April in an effort to keep people in work.
Around 2million middle-class Brits will benefit from the complete scrapping of the £1million threshold.
The move is specifically targeted at doctors who leave the NHS early to avoid being trapped by taxes on their savings.
It was first announced in March as part of the Spring Budget but now the date it will be abolished has been confirmed as April 6, 2024.
This will allow workers to put more money into their pension pot before being taxed.
The lifetime allowance is the total amount you can save tax into a pension scheme.
In other words, it’s the maximum amount you can save into all of your pensions combined without incurring a potentially hefty tax charge.
Pension triple lock to stay
The confirmation that the state pension amount will increase by 8.5% also showed the government’s commitment to the triple lock.
The triple lock is a calculation used to determine how much the state pension rises by each year.
The system sees payments rise in line with whatever is highest out of:
- Wages for May to July
- 2.5%
- September’s inflation figure
Growth in employees’ average total pay was 8.5% in the three months to July, while the UK’s rate of inflation remained at 6.7% in September.
This means millions of pensioners will not be left worse off, receiving an £901 rise in state pension payments.
It had been suggested that Mr Hunt would opt to increase pension payments by the lower figure of 7.8% instead.
This was the July wages figure not including bonuses and one-off payments.
This is because the overall 8.5% figure includes one-off payments made to civil servants and NHS staff this summer to help settle pay disputes.
It would have seen a lower increase in pension payments of around £826 a year.
Ministers have previously refused to guarantee the triple lock’s continuation beyond the expected 2024 election as inflation and earnings have spiralled.
Work and Pensions Secretary Mel Stride warned it was “not sustainable” in the long term.
Pot for life
The Chancellor announced plans to consult on a “pot for life” scheme in November’s Autumn Statement.
It would give savers the right to choose the pension scheme into which they are automatically enrolled.
This would allow workers to nominate into which scheme their pension contributions are saved, as well as their employer’s contributions.
Currently, companies are obliged to sign up staff to their own pension plans and this is chosen by the business rather than the individual.
But this has led to workers often having many different pensions as they switch jobs, which has resulted in some pots getting “lost”.
Official figures show around £27billion is sitting in lost pension pots.
Having a single pension pot system has been adopted by countries including Australia.
The hope is that a “pot for life” would simplify the process.
No official plans have been made as yet but the consultation could start next year.
Auto-enrolment changes
Millions could be better off in retirement after a big shakeup of auto enrolment rules.
In September the government was granted the power to lower the age limit to be automatically enrolled into workplace pensions from 22 to 18.
That’s because a new piece of legislation called the Pensions (Extension of Automatic Enrolment) Act 2023 was given the seal of approval to become law by getting what’s called “Royal Assent”.
The proposed changes to the rules would lower the age at which people are automatically placed in a workplace pension to 18.
It will also axe the lower earner’s limit (LEL) and see a worker on any amount of income be able to save.
As it stands a person has to earn at least £6,240 to be able to contribute to their workplace pension.
Nothing has officially changed yet though and the government is set to consult on how to bring the changes in in 2024.
You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.