Exploring the Autumn Budget 2024 - What it means for Unum’s products and services
The below summary is based on our understanding of the Autumn Budget 2024 (full detail of the Budget is here). Unum cannot give advice and recommends employers get advice from their financial intermediary regarding any impacts resulting from the Budget.
On 30 October 2024, the Chancellor, Rachel Reeves, of the new Labour Government delivered their first Budget in 14 years. The Budget focused on new fiscal rules to strengthen the fiscal framework, driving efficiencies and reducing wasteful spending, supporting people with the cost of living, protecting working people, supporting businesses, raising revenue to fund public services, delivering on tax commitments, fixing the NHS and reforming public services. This followed the publication of an audit of public spending, which set out £22bn of in-year pressures. Alongside the publication of the Budget were extensive supporting documents, consultations and responses.
Main measures affecting Unum’s customers and our products and services
- Increase in employer National Insurance contributions (NICs) from 13.8% to 15% from April 2025 and a reduction in the per employee threshold above which employer NICs are payable (the Secondary Threshold) from £9,100 to £5,000 per year.
- Bringing unspent pension pots and death benefits into the scope of Inheritance Tax (IHT) from April 2027.
Increase in employer NICs
This will indirectly impact employer-funded Dental, Optical and Group Critical Illness benefits as these are taxed as a benefit-in-kind for employees and premiums are subject to employer NICs.
Group Income Protection (GIP) policies include an option for employers to insure their own NICs, to be paid in the event of a claim; the increase to these NICs will increase the benefit payable in the event of a claim where employers have opted for these to be insured. For a more detailed summary of the impact on GIP policies, including new claims and claims already in payment, visit our Changes to National Insurance Contributions (NICs) from April 2025 article.
Unspent pension pots / death benefits subject to IHT
Current state
Most Group Life benefits are paid from registered pension schemes, either alongside retirement benefits or on a standalone basis. Benefits are currently paid tax free up to the lump sum and death benefit allowance ‘LSDBA’ (previously the Lifetime Allowance ‘LTA’) of c£1m as of tax year 2024/2025.
Future state
HM Revenue & Customs (HMRC) technical consultation launched alongside the Budget states that, “from 6 April 2027 most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax purposes.”
There is a detailed list of benefits in scope of this change, including lump sum death benefits. There is a footnote indicating Group Life policies fall outside of the scope of these changes: “All life policy products purchased with pension funds or alongside them as part of a pension package offered by an employer are not in scope of the changes in this consultation document.”
Dependants’ pension benefits are unaffected, with income taxed at the beneficiaries’ marginal rate, and excepted Group Life policy benefits are not in scope for the changes.
What this means
Where death benefits provided by a registered pension scheme are not insured by a life policy, they are in scope for these changes, and benefits will be subject to IHT.
Where death benefits provided by a registered pension scheme are insured by a life policy, which is purchased with pension funds or alongside a pension package, they are not in scope for these changes, and these benefits will not be subject to IHT.
What it could mean
In addition to being subject to IHT, death benefits could also be subject to income tax at the recipient’s marginal rate, if they are in excess of the lump sum and death benefit allowance (LSDBA).
They could also be subject to the special lump sum death benefits charge, if the death benefits are paid more than two years after a member’s death.
Standalone Group Life registered pension schemes could also be in scope for the consultation and so these death benefits may be subject to IHT; the exclusion for life policy products is not clear.
What happens next?
HMRC has allowed more time for operational readiness of these changes and the technical consultation closes January 2025.
We will also be seeking clarity from HMRC through Group Risk Development (GRiD) and the Association of British Insurers (ABI), on the scope of bringing unused pension funds and death benefits into the inheritance tax framework, and will provide a further update here as and when we know more.