PFS What's new bulletin - March II

Changes to company size thresholds 

(AF2, JO3)

 

From 6 April 2025, the Government thresholds that determine if a company is classified as micro, small, medium or large will change. This means that, for accounting periods beginning on or after this date, a private company or organisation will now be considered micro two out of the three following conditions are met:

 

·         turnover of not more than £1 million — increased from £632,000;

·         balance sheet total of not more than £500,000 — increased from £316,000;

·         monthly average number of employees of not more than 10 — no change.

 

It will now be considered if small if two out of the three following conditions are met:

 

·         turnover of not more than £15 million — increased from £10.2 million;

·         balance sheet total of not more than £7.5 million — increased from £5.1 million;

·         monthly average number of employees of not more than 50 — no change.

 

In summary, the updated size thresholds for micro, small, medium, and large entities will be as follows:

 

	Micro	Small	Medium	Large
Annual turnover	Not more than £1 million	Not more than £15 million	Not more than £54 million	More than £54 million
Balance sheet total	Not more than £500,000	Not more than £7.5 million	Not more than £27 million	More than £27 million
Average number of employees	Not more than 10	Not more than 50	Not more than 250	More than 250

 

Impact on corporate investment

 

This change will mean that more companies will be able to qualify as micro-entities, and, therefore, amongst other things, the historic cost basis of accounting, which provides tax deferral opportunities for some company investments.

 

Please see Corporate investment - what you need to know.

 

 

Impact on off payroll working (IR35)

 

A large or medium-sized client is responsible for determining the employment status of any worker supplying their services through an intermediary — usually a personal service company. Anyone who needs to consider the off-payroll working (IR35) rules will need to know about this important change relating to company size thresholds. However, the threshold changes will have no practical impact for the off-payroll working rules until 6 April 2026, at the earliest, because, for that purpose, a company’s size is determined by reference to previous years.

 

 

FCA outlines next steps on Consumer Duty rule review

(AF1, RO3)

 

In an action plan released on 25 March, the FCA outlined proposals to review its expectations for mortgages and lending, and to explore how it can simplify communications about savings accounts. The FCA will also review parts of its credit advertising rules, such as lengthy terms and conditions.

 

The proposals are part of the FCA’s work to streamline our rules, reduce burdens on businesses, and improve outcomes for consumers following the introduction of the Consumer Duty.

 

The FCA says that there was clear feedback to its call for input that now is not the time for wholesale changes to its rules. It will continue to engage with industry and others to get the balance right, without a widespread overhaul.

 

The FCA’s plans include:

 

·         Making it easier to navigate regulations for consumer finance, investment and mortgages firms by planning to retire more than 100 pages of outdated guidance.

·         Withdrawing hundreds of supervisory publications.

·         Reviewing current prescriptive disclosure rules to give firms more flexibility to tailor communications to customers' needs and preferences, like online and digital transactions.

·         Revisiting rules for businesses with customers outside the UK, for example looking at whether insurance firms need to apply UK rules for their overseas customers.

 

Sarah Pritchard, executive director of supervision, policy, competition and international at the FCA said: 'Now the Consumer Duty is in full force we’re making changes quickly where stakeholders want us to, to cut unnecessary costs, support growth, and ultimately help consumers get better outcomes.

 

'These proposals are part of our long-term efforts to future-proof our rules, reduce burdens for financial firms and will help the ambitious government targets to cut the cost of regulation.'

 

 

 

INVESTMENT PLANNING

 

Changes to eligibility for Help to Save Accounts for working Universal Credit claimants - new HMRC Policy Paper

(AF4, FA7, LP2, RO2)

 

The extension of the eligibility criteria for Help to Save Accounts for individuals who are both working and claiming Universal Credit, with effect from 6 April 2025.

 

It was announced in the Autumn Budget 2024 that the Help to Save Scheme was being extended until April 2027. The purpose of the Scheme is to incentivise low-earning households to save, with the Government providing a bonus of 50% on monthly savings of up to £50 over a four-year period.

 

Currently, only individuals earning above a certain amount are eligible for the Scheme. However, from 6 April 2025, working Universal Credit claimants will also be eligible and the current earnings threshold which applies to people claiming Universal Credit (which is equivalent to working 16 hours per week at the National Living Wage) will be abolished.

HMRC has now published its Policy Paper. The Help to Save Accounts Regulations (2018) will be revised, widening the scope of eligibility to include all working Universal Credit claimants, who earn at least £1 in the assessment period immediately prior to their application.

 

The aim is to make the Scheme more widely available and supports the Government’s objective of increasing financial inclusion for low-earning households, so that they have some form of savings to fall back on in the event of unforeseen events occurring, such as loss of income, the cost of repairing or replacing household items, etc.

 

Comment

 

It is hoped that increased eligibility for the Help to Save Scheme, along with the attraction of the Government bonus, will encourage more of a savings culture for low-income households. The positive impact of this is anticipated to be reduced financial pressures, more financial stability and potentially better familial wellbeing.

 

 

 

 

 

 

 

 

 

 

 

 

 

February inflation numbers

(AF4, FA7, LP2, RO2)

 

The UK CPI inflation rate for February 2025, which was 2.8%, 0.2% down from January

 

 

The CPI annual rate for February was 2.8%, 0.2% lower than January and 0.1% below market expectations, but in line with the Bank of England’s forecast.

 

The UK CPI reading was up 0.4% between January and February, which compares with a 0.6% rise in the corresponding period of 2024. The CPI/RPI gap remained at 0.6% with the RPI annual rate also falling by 0.2% (to 3.4%). Over the month, the RPI index rose by 0.6%.

The Office for National Statistics (ONS)’s favoured CPIH index joined the CPI and RPI with a decline of 0.2% to an annual 3.7%, maintaining its unusually high margin above the CPI. As we have regularly said in recent months, a large part of that excess is due to the owner occupiers’ housing (OOH) category, which now has a 17.1% weighting in the CPIH but is absent from the CPI. The OOH inflation rate dropped 0.5% to 7.5%, the first time the annual rate has slowed since November 2023.

 

The ONS attributed the lower CPIH inflation primarily to three divisions:

 

Main downward drivers

 

Clothing and footwear. 

Overall prices for clothing and footwear fell by 0.6% in the year to February 2025, compared with a rise of 1.8% in the year to January. The February figure was the first time that the annual rate had turned negative since October 2021.

 

The ONS says the drop was mainly the result of a large downward effect from garments for women, with small downward effects coming from a range of women's clothing items. It notes “an increase in the incidence of discounting”, which may reflect weak consumer demand.

Housing and household services. 

The annual inflation rate for housing and household services was 5.3% in February 2025, down from 5.6% in January. On a monthly basis, prices rose by 0.3% in February 2025, compared with a rise of 0.6% a year ago.

 

The slowing in the annual rate between January and February 2025 reflected downward effects from OOH costs (please see above) and, to a lesser extent, actual rentals for housing (year on year rent rises fell to 7.4% from 7.8%).

 

Recreation and Culture. 

Overall prices in the recreation and culture division rose by 3.4% in the year to February 2025, down from 3.8% in the year to January. On a monthly basis, prices rose by 0.1% in February 2025, compared with a rise of 0.5% a year ago. The largest downward moves came from cultural services (particularly from live music admission prices) and recording media.

 

Upward drivers

 

There were relatively small upward contributions to the change in the annual rate of inflation between January 2024 and February 2025, from Miscellaneous Goods and Services, Alcohol Beverage and Tobacco and Communications.

 

Six of the twelve broad CPI divisions saw annual inflation increase, while four fell and two remained unchanged. The categories with highest annual inflation rate are Education (7.5%), Communication (7.3%) and Alcoholic Beverages and Tobacco (5.7%). One division (Clothing and Footwear) posted an annual deflation.

 

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) fell 0.2% to 3.5%. Goods inflation fell 0.2% to 0.8%, while services inflation was stuck at 5.0%, 0.1% above market expectations.

 

The ONS has identified problems in the calculation of its Producer Price Inflation indices and recently issued a statement that publication of the data would be “paused” for the time being. There is no indication of when reporting would be resumed beyond “as soon as is practicable”. The main inflation indices are unaffected.  

 

 

 

 

 

 

 

 

 

 

 

 

PENSIONS

 

HMRC Pension Schemes Newsletter 168 – March 2025

(AF8, FA2, JO5, RO4)

 

Pension Schemes Newsletter 168 covers the following:

 

• pension scheme return (PSR);
• drawdown pension tables;
• qualifying recognised overseas pension schemes (QROPS);
• lifetime allowance protections and enhancements.

 

Areas of particular interest:

 

Drawdown pension tables

 

HMRC published extended drawdown pension tables on 27 March 2025. These should be used for all drawdown calculations from 1 September 2025.

 

For pension drawdown calculations up to 31 August 2025, providers should continue to use the earlier versions of the drawdown pension tables (extended yields) and instructions.

 

For any questions about the extended drawdown tables, please email policypensions@hmrc.gov.uk and put ‘drawdown pension tables’ in the subject line. 

 

Qualifying recognised overseas pension schemes (QROPS)

 

In the Pension schemes newsletter 167, HMRC advised that, from 6 April 2025, the conditions that schemes established in the EEA need to meet to be an Overseas Pensions scheme and Recognised Overseas Pension Scheme will be brought in line with the conditions that must be met by schemes established in the rest of the world.

 

HMRC will shortly be writing to scheme managers of QROPS in the EEA asking them to confirm that they meet these conditions. If HMRC does not receive a response or they confirm that they do not meet the new conditions by 7 May 2025, the scheme will cease to be a QROPS.

 

The check the recognised overseas pension schemes notification list will be updated by 15 May 2025.

 

Lifetime allowance protections and enhancements

 

HMRC wants to remind everyone that, as a result of the abolition of the lifetime allowance, deadlines have now been applied to certain lifetime allowance protections:

 

• Fixed protection 2016 and individual protection 2016

The application deadline for both fixed protection 2016 and individual protection 2016 is 5 April 2025.

 

Individuals can apply for either or both of these protections before the deadline online.

 

• International enhancements

Overseas individuals with accrual under a registered pension scheme, or transfers from a ROPS, who want to apply for international enhancements, must do so by 5 April 2025.

 

• Pension credit enhancements

Individuals who want to apply for pension credit enhancements from previously crystallised rights must do so on or before 5 April 2025.

 

The Department of Work and Pension latest pensioner incomes statistics

(AF8, FA2, JO5, RO4)

 

The Key findings from the DWP’s statistics:

 

Pensioners’ incomes have increased since 1995 and have been stable since 2010.

Average weekly income of pensioners (AHC) by family type in FYE 2024 prices (£)

 

Pensioners’ average weekly incomes increased for all pensioners, between the start of pensioners’ incomes in FYE 1995, when it was £206, to £392 in FYE 2010. In the 14 years from FYE 2010 to FYE 2024, pensioners had similar average incomes with £392 and £407, respectively. In FYE 2024, pensioners had an average income of £407.

 

Younger pensioners had higher average incomes than older pensioners.

 

Average weekly income of pensioners (AHC) by age in FYE 2024 prices (£)

Younger pensioners had higher average incomes than older pensioners in FYE 2024. Pensioners under 75 had an average weekly income of £455 and pensioners that were 75 or over had an average income of £372.

 

The difference in average incomes between single male pensioners and single female pensioners is narrowing.

 

Average weekly income of pensioners (AHC) by gender in FYE 2024 prices (£)

Single male pensioners had higher average incomes than single female pensioners in FYE 2024. Single males had an average weekly income of £292 and single females had an average income of £278.

 

Fewer pensioners were receiving income-related benefits.

 

Percentage of pensioners receiving income-related benefits, FYE 1995, FYE 2010 and FYE 2024

The percentage of pensioners in receipt of income-related benefits (which includes State Pension) in FYE 2024 was 20%. This has been decreasing since the survey began in FYE 1995 when 37% of pensioners were in receipt of such benefits. This reflects the overall increase in pensioner income from the State Pension and private pensions over time because an increase in income reduces eligibility for income-related benefits. The percentage of pensioners in receipt of income-related benefits in FYE 2010 was 31%.

 

Pensioner couples were less reliant on benefit income than single pensioners.

 

Percentage of gross mean income from different sources by family type, FYE 2024

Pensioners receive income from a range of different sources. Changes in the composition of pensioners’ incomes reflect underlying economic factors. In FYE 2024, benefit income, which includes State Pension, was the largest component of total gross income for both pensioner couples and single pensioners. This was 56% for single pensioners, while for pensioner couples it was 37%. Income from occupational pensions was 32% of total gross income for pensioner couples and 26% for single pensioners. Income from earnings made up 7% of total gross income for single pensioners. For pensioner couples, 17% of total gross income was from earnings. Couples that contained one adult below State Pension Age (SPA) made up 27% of all pensioner couples. For some of these couples, the adult below SPA contributed to the earnings income. Where one partner was over SPA, and one was below, earnings income made up 40% of total gross income for pensioner couples. For couples where both partners were over SPA, this was only 8%.

 

Notes on the DWP statistics

The DWP’s statistics contain estimates of the levels, sources, and distribution of pensioners’ incomes. It also examines the position of pensioners within the income distribution of the population as a whole. Pensioners consist of single pensioners and pensioner couples. A pensioner couple means at least one person in the couple is over SPA. Estimates do not reflect income from others in a household but do include income from working-age partners who are part of a pensioner couple. Therefore, if a pensioner lives with their adult children, the children’s income is not included in this analysis. The head of a pensioner unit is the member of the household with the highest income if that person is part of the pensioner unit. Otherwise, the head is the first person named in the survey who is part of the pensioner unit.

 

Income measures used in Households Below Average Income (HBAI) consider variations in the size and composition of the households in which people live. This process is called equivalisation. Equivalisation reflects the fact that a family of several people needs a higher income than a single individual for them to enjoy a comparable standard of living. Except where otherwise stated, the DWP statistics use the unequivalised income of pensioners, estimated both before and after housing costs (BHC and AHC). Income AHC is derived by subtracting rent, water rates and charges, structural insurance premiums, mortgage interest payments and ground rent, and service charges from income BHC. Unless otherwise stated for certain income breakdowns, the DWP uses median income as its measure of average income. The mean is used, however, when looking at the breakdown of income components. The DWP also uses AHC figures unless otherwise stated, as it believes this is a better reflection of pensioners’ disposable incomes. All income estimates have been adjusted for inflation, to look at how incomes change over time in real terms.

 

These statistics show that the average pensioner income has been largely stagnant, increasing by just £15 over the past 14 years, with pensioner incomes now sitting at £407 a week on average (for 2024), compared to £392 in 2010. The money retirees receive could be from workplace and personal pensions, the State Pension, profits from investments, part-time work, and any other sources of income. This average weekly income drops to £282 for single pensioners and rises to £595 for pensioner couples. Pensioners aged 75 and over have lower incomes than those aged under 75, coming in at £372 and £455 respectively.

 

The data also highlights how the gender pension gap continues into retirement: single men have an average weekly income of £292 while single women have a lower average income of £278, although the data shows the gap has narrowed slightly in 2024.

 

Benefit income, which includes the State Pension, was the largest component of total gross income for both pensioner couples and single pensioners, according to the DWP. This was 56% for single pensioners, while for pensioner couples it was 37%.

 

The DWP figures also reveal that 62% of pensioners receive income from occupational pensions, while 17% were in receipt of income from personal pensions. More than six in ten (61%) of retirees receive money from investments, with an average income of £6 per week. Only about 9% of pensioners who get investment income receive £200 or more a week from their investments.

 

There could be a fall in incomes in future as final salary schemes start to be phased out from the current crop of pensioners. As more people reach retirement with workplace pensions from auto-enrolment, this might help to partly offset the drop. Meanwhile, if the State Pension continues to be uprated with the Triple Lock, this could boost incomes. The full New State Pension has just gone up to £230.30 a week (£11,975 a year). However, whilst pensions (State or otherwise) didn’t feature in the Spring Statement, it is questionable how long the Triple Lock will remain in place. With Government finances looking to remain tight, a review of the Triple Lock seems almost inevitable at some point over the next few years.

 

All of this highlights the importance of planning for retirement and the need to save into a pension and/or investment.

 

To see the full statistical report, including data tables and a background information and methodology report, please see here.