BUDGET 2025: What does it mean for pensions?

Retirees and people approaching retirement were holding their breath in anticipation of a raft of pension tax changes – but pensions got off relatively lightly in this Budget.

However, there were a few changes worth highlighting, both positive and… less so. Here are our top takeaways…

State Pension to rise – taking it close to personal allowance: The government confirmed that the State Pension will rise by 4.8% next year, taking the annual amount to £12,547. While that’s good news for now, this is edging very close to the personal allowance (the amount before you have to pay any income tax) of £12,570.

Given the personal allowance is frozen (all tax thresholds have been frozen until 2031 – extended in this Budget) and the triple lock is a minimum of 2.5%, the state pension will exceed the personal allowance in 2027, unless the government steps in. So, pensioners only getting State Pension income will have to pay income tax for the first time from then.

Salary sacrifice capped at £2,000: Salary-sacrificed pension contributions above £2,000 will be subject to National Insurance (NI) contributions from April 2029.

Workers putting away any more than this will need to pay standard National Insurance rates: 8%, if they earn less than £50,000, and 2% on anything above that. It’s a blow to diligent pension savers, and seems counterintuitive when the government is trying to encourage greater pension saving.

Inheritance tax thresholds remain frozen: IHT thresholds will remain at their current levels until 2031. These have not been uprated for years and have nowhere near kept pace with inflation.

With pensions set to be brought into the remit of IHT from April 2027, thousands more families will see their estates dragged into the IHT net.

We have a free calculator to find out how much your pension income is likely to be in retirement.