The Chancellor of the Exchequer presented his Autumn Budget and
Spending Review 2021 to Parliament on 27 October. This bulletin
focuses on areas in which GAD (the Government Actuary's
Department) advises, including announcements relating to
pensions, savings, and the Chancellor’s ambition to ‘make work
pay’.
Spending Review
This Budget coincides with the conclusion of the Spending Review
2021 (SR21). SR21 sets out the government’s spending
priorities for the remainder of this Parliament and finalises
departmental funding settlements for the period to April 2025.
The Chancellor announced a cash increase to total departmental
spending of £150 billion over that period. Every department’s
overall spending will increase faster than inflation and, on
average, spending growth will exceed inflation by 3.8% each year.
SR21 sets out the priority outcomes that government departments
will deliver with their agreed funding - see Chapter 4 of
the Autumn
Budget and Spending Review 2021 report. Also available,
linking together spending and performance, are the metrics that
will be used to measure progress - see SR21:
Priority outcomes and metrics.
The government’s commitment to sustainable public finances over
the medium term is underpinned by new fiscal rules. The
government has updated its fiscal rules to reflect the
significant change in economic and fiscal context from COVID-19.
The fiscal outlook has improved since the Office for Budget
Responsibility’s March 2021 forecast (see their
latest Economic
and Fiscal Outlook – October 2021). Further information on
the government’s fiscal framework is available in Annex A of
the main report and in the updated Charter for Budget
Responsibility.
Pensions and savings
The Chancellor announced the government would consult, before the
end of the year, on further changes to the regulatory charge cap
for defined contribution auto-enrolment pension schemes.
Amendments to the scope of the cap will be considered to enable
investments into the UK’s most productive assets, while
continuing to protect savers. The government will also continue
wider policy work to understand and remove various barriers to
illiquid investment.
HM Revenue & Customs has published details of legislation
introduced to ensure the pensions tax framework continues
to apply as intended to the
public service pension schemes. Often known as ‘the McCloud
case’, schemes are implementing
remedy to correct for unlawful age discrimination
following the 2015 scheme reforms - this will impact certain
members’ benefits. Technical changes to tax legislation are
needed. These changes will (as far as possible) put those members
in the tax position they would have been in, had they always had
the pension provision they finally receive.
The government also announced reforms relating to the
administration of tax relief for lower-earning individuals saving
in a pension scheme using a Net Pay Arrangement. The changes are
intended to better align outcomes with equivalent savers in
schemes using Relief at Source, where tax relief can be higher
for low earners.
For the financial year starting in April 2025 the government will
introduce top-up payments, paid directly to low-earning
individuals saving in pension schemes using a Net Pay
Arrangement. The government estimates 1.2 million individuals
could benefit by an average of £53 a year. Further details are
available in Pensions tax relief
administration: Call for Evidence Response.
The following savings tax thresholds were confirmed for 2022 to
2023:
-
the band of savings income that is subject to the 0% starting
tax rate will remain at its current level of £5,000
-
the annual subscription limit for Individual Savings Accounts
(ISA) will be maintained at £20,000 for adults and £9,000 for
Junior ISAs and Child Trust Funds
The Autumn Budget also confirmed September’s announcement on how
the State Pension will be
uprated for April 2022. The ‘Triple Lock’ will be temporarily
suspended for one year.The State Pension and Pension Credit will
instead increase by either the rate of Consumer Price Inflation
(CPI) or 2.5%, whichever is higher.
Making work pay
In his Budget speech, the
Chancellor talked about building “a society that rewards work”.
Aligned to this, he announced a reduction in the taper rate that
applies to Universal Credit. In a change that will be introduced
by 1 December 2021, the taper will fall from 63% to 55%, slowing
the rate at which benefits are withdrawn as households earn more.
At the same time, the amount that certain households can earn
before their Universal Credit award is reduced – the Work
Allowance - will be increased by £500.
The Spending Review
2020 had announced a ‘pause’ on most pay rises in the
public sector during 2021 to 2022. However, SR21 announced a
return to a normal pay setting process for the next 3 years.
Where applicable the government will seek recommendations from
Pay Review Bodies.
The National Living Wage (NLW) and National Minimum Wage will
increase in line with the recommendations of the Low Pay
Commission. For individuals aged 23 and over, the NLW will
increase by 6.6%, from £8.91 to £9.50 an hour, effective from 1
April 2022.
