The UK Government’s 2023 Autumn Statement – A Watching Brief for Life, Pension and Retail Investment Firms

The UK Government’s 2023 Autumn Statement had widely been expected within the media to be focused on growth and business, with a string of tax cuts and reliefs for both the individual and for businesses. In this article, we take a look at the policy decisions taken within this fiscal event and how this affects life, pension, retail investment and advice firms.

Whilst there were rumours of a British ISA (BrISA) and a scrapping of the LISA property cap that  did not come to pass, there were a number of significant changes to the ISA landscape.

The key wrapper changes include:

• Ability to open multiple ISAs of the same basis within a tax year, across multiple providers
• Ability to make a partial transfer of funds between providers within a tax year
• Scrapping of the requirement to re-apply for an existing dormant ISA

Impact for Providers

The resulting impact for the end consumer is further flexibility to own multiple ISAs and to transfer their ISA funds during a tax year. This will require platform providers and operators to change their ISA rules, and will result in additional operational cost due to the increased complexity of ISA/HMRC annual reporting. This further increases the need for centralised ISA subscription data for the tax year, which the government have responded to on the digitisation of the ISA reporting system – although there is no date for when this will be complete.

These changes, which make it easier for customers to switch providers, will force place greater providers to ensure the experience, price and rates offered are competitive enough to attract and retain flows.

In terms of the assets held within the ISA wrapper, there has been additional freedom to incorporate Long Term Asset Funds (LTAFs), including Property Funds, within the “Innovative Finance ISA.” This allows for longer term assets, which cannot be sold within 30 days, to benefit from the ISA tax exemptions.

Similarly, fractional shares (the ability to hold a portion of expensive stocks) will be allowed within Stocks and Shares ISAs. This will be particularly popular with younger investors who, despite not being able to afford full shares of expensive stocks, still want to benefit from the growth of larger corporations.

Outside of ISAs, the sunset clauses have been extended for VCT and EIS products, ensuring the 30% income tax relief will not be stopped until 2035. Alongside this, Stamp Duty Reserve Tax relief has been broadened to include smaller growth markets (although it is not yet clear which markets this will be linked to).

Impact for Financial Advice Firms

Financial advice firms will need to review these changes within their advice policy and their central investment proposition. Whilst the VCT and EIS sunset clause extension will mean that clients using these vehicles will not require a substantive review of suitability against goals, the inclusion of longer term assets into ISAs could impact what firms see as “low risk investments” and, by extension, how they review suitability.

Following example from countries such as Australia, the UK are beginning a consultation on changes to workplace pension schemes supporting employees right to choose the scheme into which their employer pays contributions. This could enable individuals to have one “pension pot for life” across their career with no transfer/consolidation requirement.

Whilst this is obviously a good move for the individual employee, there are a number of considerations the government and pension providers will need to assess. These are as follows:

1. How will legacy workplace pensions be dealt with?
2. How does this link into the wider plans for “pension simplification” and Pensions Dashboard?
3. What will this mean for “pension consolidator” firms?
4. How will this affect employer’s operating costs?

Impact for Pension Providers

Whilst the expected outcomes are positive in respect of ease of use and the likelihood of providers wanting to incentivise younger employees to “seed” their workplace pension with them, there is the potential that this system could follow the Australian model and lead to the creation of “mega funds” which savers could choose from, rather than the plethora of options available to employees currently. Pension providers should work willingly with the government to ensure these considerations are taken into account.

We believe that the above policy decisions, alongside further announcements that didn’t make the headlines (value for money framework in DC workplace pension consultation, publication of a master trust market review and continued review of CDC schemes), could mean a major shakeup in the life, pension and retail investment (LPRI) market. However, a number of these initiatives are consultations and, given a General Election is due to take place by January 2025, LPRI firms should now, more than ever, remain responsive and flexible to the evolving marketplace.