Headlines for pensions
- The triple lock will remain for State Pensions. As a result, from April next year, State Pensions will increase by 4.8%.
- From April 2029, a £2,000 annual cap will apply to pension contributions made through Salary Sacrifice arrangements. Whilst this cap does not limit how much someone can pay into a pension, it does limit how much will be eligible for National Insurance Contribution (NIC) relief.
- Current Tax thresholds and NIC secondary thresholds will remain at their current levels until April 2031.
- A new Pension Commission will examine the balance between State Pensions, workplace pensions, and private savings, alongside a third review of the State Pension Age.
- The option for UK citizens living overseas to pay lower Class 2 NIC will be closed; they will now need to pay higher Class 3 rates if they wish to continue to increase their UK State Pension entitlement.
Commentary
The decision to maintain the triple lock for State Pensions is positive news for the 13 million State Pension recipients. From April 2026, individuals who reached their State Pension Age on or after 6 April 2016 will see their State Pension increase to £241.30 per week (£12,547.60 per year). Those who reached their State Pension Age before this date will receive £184.90 per week (£9,614.80 per year).
As the triple lock is staying in place and tax thresholds will also remain at their current levels, future State Pension increases could result in some pensioners paying income tax on part of their State Pension, even if that is their sole income.
The cap on pension contributions qualifying for NIC relief may deter some from increasing or maintaining their current level of pension contributions. It will also undoubtably increase the cost of employment for companies; potentially impacting their ability to recruit or increase wages. The government expects that around 74% of basic rate taxpayers are unlikely to be impacted by this cap. Higher earners may see an impact on their take-home pay, but like those on lower incomes, they will still receive Income Tax relief on all contributions up to the Annual Allowance (currently £60,000 for most people). More details on pension contribution taxation are available at https://www.gov.uk/tax-on-your-private-pension/annual-allowance
Other related details from this year’s budget
Higher taxes on income from investments and savings – Those that receive income from savings, property investments or company dividends will pay an additional 2% tax on these sources of income.
Expected reductions to energy bills – Measures within the budget should see a reduction to energy bills from April 2026. It is likely that the reduction for the average household will be around £150 per year.
Fuel duty and an electric car levy – The 5p per litre cut to fuel duty will remain in force until September 2026, after that this reduction will be removed, as will the current freeze on fuel duty, which has been in place since 2011. This will result in higher prices at the pumps for motorists. Those who drive purely electric cars have not been spared either, they will be liable to a 3p per-mile levy, which comes into effect from April 2028.
This article does not aim to cover everything included in today’s budget. For full details of the 2025 budget please visit https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html#policy-decisions