Budget November 2025: The pensions changes at a glance

What’s changed?

• From April 2026, the Basic State Pension and Single Tier State Pension will rise by 4.8 per cent pa.
• From 2029, only the first £2,000 of salary sacrificed in return for pension contributions will be exempt from National Insurance (NI) contributions.
• The freeze on income tax thresholds has been extended by three years to April 2031.
• Pre-6 April 1997 pensions being paid by the Pension Protection Fund and Financial Assistance Scheme will now be indexed for inflation (but only if the original pension scheme rules provided for such inflation increases) capped at 2.5 per cent per annum. It is unclear what will apply if schemes paid different increases (for example, with a different cap or fixed increases).
• To encourage investment, from April 2027 the annual Cash ISA allowance will be reduced from £20,000 to £12,000 for individuals under 65 (but pensioners and those over age 65 will retain the ability to invest 100 per cent of the £20,000 allowance in cash).
• Although unclear exactly how this will operate, the Pension Schemes Bill will be amended to allow well-funded defined benefit pension schemes to pay surplus direct to members who are over the normal minimum pension age (but this will be subject to the scheme rules and trustees approval).
• Building on last year’s budget, the Investment Reserve Fund will be transferred to the trustees of the British Coal Staff Superannuation to provide additional member benefits.
• From April 2027, personal representatives who have obtained clearance from HMRC will be discharged from any liability to pay IHT on pensions discovered after that clearance.
• To ease the administrative burden for pensioners whose sole income is the basic or new state pension without any increments, the Finance Bill 2025-26 will be amended so that they do not have to pay small amounts of tax via the HMRC’s simple assessment process.

What’s staying the same?

• State pension triple lock maintained (that is tracking the highest of CPI inflation, earnings growth or 2.5 per cent) for the duration of the current Parliament.
• Annual allowance unchanged at £60,000.
• Despite much speculation, 25 per cent tax free cash unchanged.
• Tax relief on contributions maintained at savers’ marginal rates.
• Freeze on income tax thresholds will remain (and will be extended by three years).

Comment

While the cap on the NI benefits of salary sacrifice is disappointing, employers will have four years to plan, potentially mitigate increased costs and update their payroll systems. But this comes with further complexity, which will only serve to discourage pensions saving in the long term. Thankfully there are no changes to the tax free cash regime.

The ISA changes are also slightly odd as, contrary to Mansion House aims, the non-cash element could be invested in non-UK stocks and furthermore it also seems counter-intuitive to exempt pensioners. It will be interesting to see how the proposal to pay surplus to pensioners is set out in the Bill – this is a welcome change, but is possibly not well thought through as trustees considering surplus sharing will want to benefit all members.