We’re all busy.
And most of us couldn’t care less about the intricacies of our dear chancellor Jeremy Hunt’s Autumn Statement 🥱
That’s where this convenient little summary comes in.
So unless you’ve got a burning desire to listen to Jeremy’s dulcet tones, or have a penchant for personal finances, here’s what you need to know from yesterday’s Statement.
In summary, it was a rather uneventful one.
The cynic in me predicted it, with Jez keen to not rock the boat too much in advance of next year’s general election.
All the juicy rumours of lower income taxes and the abolition of Inheritance Tax fizzled out, to be replaced with some minor tinkering to National Insurance.
Nonetheless – there were a few notable points.
With that, here’s your Headsup:
If you’re in receipt of your State Pension, it’s going up… again
Good news for state pensioners as the government have (for now) promised to continue honouring their ‘triple lock’ guarantee. This means your State Pension will go up by 8.5% in April 2024, worth up to £900 a year. If you want to know more about what the ‘triple lock guarantee’ is then check out episode 16 of my podcast Headsup on Money.
(Paltry) cuts to National Insurance
Ahead of the Statement there were rumours that Mr Hunt would play with Income Tax thresholds and/or rates, but these were conspicuously absent, to be upstaged by minor tweaks to National Insurance (NI). As a reminder, think of NI as your annual ticket to the State Pension in the future. Current NI payers subsidise current state pensioners. Each year you pay NI to ‘bank’ a qualifying year of State Pension entitlement. The idea is that when you reach state pension age you have enough ‘qualifying years’ to be entitled to the full State Pension. Simple… right?! Yesterday Jeremy announced that the main NI rate will be cut from… drum roll please … 12% to 10% with effect from January 2024. And what that, the cost of living crisis was over *rolls eyes*.On top of this, Hunt announced NI cuts for self-employed individuals, scrapping class 2 NI contributions completely and also lowering the standard rates for self-employed from 9% to 8%.
One pension pot for life
There are to be consultations around giving pension savers ‘a pot for life’. The idea here is to avoid the current reality where workers amass a collection of pension pots over the course of their career. The idea being that if you switch jobs, your new employer will have to pay into your old workplace pension, rather than chuck you into yet another one. There is little doubt that for some individuals their workplace pensions will be the backbone of their retirement planning, but care should be taken to ensure your workplace pension is working for you behind the scenes. Taking time to review the fund you’re invested in and the charges you’re paying will pay dividends over your working career. Whilst the announcement here is aimed to simplify your pension affairs, you should always take care to not prioritise simplicity with suitability. If your workplace pension offers a limited range of very expensive funds, then it’s very unlikely this will be the best long term strategy for your retirement, no matter how nice it may be to have all your pensions consolidated.
(Even paltrier) changes to ISAs
From April 2024 you’ll be able to open multiple ISAs of the same type in each tax year. At the moment -for some ludicrous reason- if you’ve already contributed to … let’s say a stocks and shares ISA in the current tax year, then you’re prevented from contributing to another stocks and shares ISA in the same tax year. Bonkers. Going forward this will no longer be the case. Keep in mind that the term ‘ISA’ has nothing to do with how your savings or investments are performing. I often hear clients say ‘my ISA is performing really badly at the moment’ which simply isn’t correct. Think of an ISA as a ‘box’ with tax privileges. What’s more important is what goes inside that box… Is it cash? Or other asset classes that offer more opportunity for longer term capital growth – i.e. shares?
Inflation will come down … but it’s not going to happen quickly
This is really nothing but conjecture at the moment, but Hunt remarked that inflation is expected to cool down from current levels and fall to 2.8% by the end of 2024. The spending watchdog now expects inflation to stay “higher for longer” and that it will not drop to the Bank of England’s target of 2% until mid-2025. This is a year later than it expected in March. Not very cheerful reading! I call inflation the Terminator of Wealth and by far the greatest risk to your long term wealth and wellbeing. In times such as these, it’s more important then ever that you continue to invest for the longer term in real asset classes that provide a historical rise in capital value and income – equities. Although higher inflation levels lead to higher interest rates and the allure of cash savings, it’s really important to remember that cash is never king. Cash should be part of your saving strategy but not part of your investing strategy. Here’s a reminder on the differences and why it matters when it comes to your long term planning.
It’s helpful to understand what Jeremy’s changes and proposals mean for your personal finances, but such changes are fairly immaterial in the long-run, so don’t get lost in the details.
There may be small changes necessary to your short-term planning to best adapt to these amendments, but the true success in your long-term planning comes from staring out the window and letting it all blow by.