Pensions measures in the November 2025 Budget

The Chancellor delivered her Budget on November 26, 2025. As extensively trailed before the Budget speech, salary sacrifice contributions exempt from National Insurance Contributions (NICs) will be capped at £2,000 of salary per annum but this is not due to come into force before April 6, 2029. Several other pensions measures are included in the Budget document, entitled Strong Foundations, Secure Future.

The following pensions-related proposals were included:

Salary sacrifice: employer and employee NIC exemption will apply only to the first £2,000 of annual contributions from April 6, 2029. Contributions in excess of this limit will be subject to both employer and employee NICs. HM Treasury has published guidance.

The relevant legislation, the National Insurance Contributions (Employer Pensions Contributions) Bill was published and had its first reading in the House of Commons on December 4, 2025. The Bill empowers HM Treasury to apply NICs on salary sacrificed for employer pension contributions over the £2,000 limit, effective for tax year 2029-30 and subsequent tax years. The second reading is scheduled for December 17, 2025.

Inheritance tax: The 2024 Budget included the imposition of inheritance tax (IHT) on unused pension funds and some death benefits with effect from April 6, 2027. The 2025 Budget includes an easement for Personal Representatives as they will be able to direct pension scheme administrators to withhold up to 50 per cent of any taxable benefits on death for up to 15 months and to pay any IHT due on those benefits. Personal Representatives will also be discharged from liability to pay IHT on pensions discovered after they have received clearance from HMRC.

DB scheme surplus: the Government intends to build on the reforms set out in the Pension Schemes Bill by allowing “well-funded DB pension schemes to pay surplus funds directly to scheme members over the normal minimum pension age, where scheme rules and trustees permit it, from April 2027”. The form these benefits may take has not been specified, although they may be lump sums. Legislative change will be required as such lump sums would currently be unauthorised payments.

PPF and FAS compensation payments: currently, compensation payments from the Pension Protection Fund and the Financial Assistance Scheme receive no inflation increases for benefits in relation to pre-April 1997 service. From January 1, 2027, such payments will be increased by inflation, capped at 2.5 per cent.

CDC scheme registration: the Government proposes to enable unconnected, multiple-employer collective DC schemes (UMESs) to apply to HMRC to become registered pension schemes. HMRC will have the power to refuse registration, or to de-register a CDC scheme. The proposed changes will bring UMESs onto an equal footing with Master Trusts for HMRC registration purposes. Details have been published by HMRC.

Further pensions announcements - further changes include:

• The Basic State Pension and the Single Tier State Pension will be increased by 4.6 per cent from April 6, 2026, making them £184.90 and £241.30 per week respectively. Pensioners whose sole income is the basic or new state pension will not be required to pay income tax via self-assessment even where the pension exceeds the personal allowance.
• Income Tax and NIC thresholds are to be frozen until April 2031, meaning the current levels will have applied since April 2022.

The Budget 2025 resolutions received the agreement of the House of Commons on December 2, 2025. Also on December 2, 2025, the Finance Bill 2026 received its first Commons reading. The Bill will now proceed to its second Commons reading, the date for which has yet to be announced.

The latest Pension schemes newsletter (No. 175) summarises all the Budget announcements in connection with tax relieved pension savings.