Changes To The U.K. State Pension And Related Amendments
Highlights:
- The U.K. state pension payments increased in April 2020 by 2.5%
- People in the UK, aged over 66, now receive around 180 euros every week as pension
- This is an increase of approximately 4.5 euros on the weekly pension payment since 2020
- The increment results in a total increase of about 229 euros for the financial year of 2021-22
- The payments are expected to go up to at least 184 euros weekly in the 2022-23 financial year
The U.K. state pension, previously subject to a triple lock, will be replaced by a double lock version in 2022-23, as announced by The Department for Work and Pensions. The triple lock pension was introduced in the year 2010, more than a decade ago, that guaranteed the UK’s state pensions increasing every year by a higher incremental degree of – CPI measure of inflation, increasing average wages or 2.5% (the highest of these 3)
The Covid-19 pandemic witnessed several issues, including furloughing of staff, wage cuts, decreased employee retention, increasing attrition, resulting in decreased average earnings in 2020. If the increase in pension were based on average wages, it would result in the pensioners qualifying for a whopping 8% increase in their annual pension income, leading the government cost to increase by 3 billion euros.
The test against the increasing average wages is going to be removed in the coming year 2022 with a basic and new double lock state pension that is only going to increase according to – 2.5% or CPI measure of inflation (highest of the two). Adding to that, the residents for the jurisdictions like Canada and Australia that receive the UK state pension will remain unaffected by these changes since their pensions are currently frozen.
The increase in the National Insurance rates
The national insurance rates in the United Kingdom have increased by 20%, with the financial and professional liability insurance being the most significant drivers of the increment, taking up to 46% of the total increase. However, the UK government has voted to increase 1.25% on several national insurance contributions paid by the employed and self-employed, increasing the payroll taxes yet again.
April 2023 is set to revert to its current insurance rate and an extra tax of 1.25% that will be collected as a Health and Social Care Levy, keeping the coronavirus pandemic situation in mind. The new taxations also apply to all individuals over the state pension age who are right now exempted from paying the national insurance coverage.
The insurances in the UK will be used to fund the National Health Service system in favour of the people of the country, along with benefitting the state pension and benefits. The government is planning to borrow from this fund to pay for their other projects. This makes the UK one of the first nations to utilise the fiscal policy to help cover all costs resulting from the Covid-19 pandemic.
The splurge of Inheritance Tax
The inheritance tax is a tax that is levied on the property and money acquired as gifts or by inheritance from parents or relatives. Government figures tell how the UK inheritance tax receipts totalling 5.4 billion euros, which is an increase of around 200 million euros compared to the previous year of 2020. Taxpayers saved about 30 million euros in total in the inheritance taxation through gifting, and many took advantage of the 3000 euros as the annual gift allowance. However, the allowance of 3000 euros has been the same for the last 40 years, since the 1980s, and is now receiving huge criticism. This is because in the likes of inflation, the allowance today should have increased to a total of about 12,000 euros. The inheritance tax receipts are expected to reach at least 5 billion euros by 2022.
Lasting Powers of Attorney Development and Improvement
The Lasting Power of Attorney (LPA) was created in 2005 and came into existence in 2007 intending to provide an increase in flexibility and protection of the attorney than just the enduring power of them.
However, digitalisation has changed people’s expectations with almost everything that exists today. Even with the lasting power of attorney, they want to access all services digitally to save the time and hassle of physical commuting. They also wish to increase the speed and agility of the service, ensuring the data security put into such systems. Hence, the Ministry of Justice and Office of Public Guardian is now looking to modernise the existing lasting power for an attorney, aiming at –
- Increasing security for the users and donors
- Improving the registration process of LPA for the attorney, donors, and third party
- Achieving sustainability for the Office of Public Guardian
- Keeping the LPA affordable for the public
- Changing the Mental Capacity Act 2005 and supporting secondary legislation in favour of the modernising of the LPA
The authorities are still in the talks to make the amendments to modernise the LPA, and the ministry of Justice’s consultation on its plan has been in the working play since 2021 and ongoing until the 13th October 2021.
If you’d like to speak with a professional about any concerns you have in regards to the changes in the U.K. state pension, book an introduction with a qualified financial adviser today.
