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Autumn Budget 2025: Pensions

05 Dec 2025

The Chancellor Rachel Reeves, has now delivered the Autumn Budget 2025.  What does this mean for you and your pension?

Salary sacrifice is capped at £2,000 a year – but not until April 2029

From April 2029, if you pay more than £2,000 a year into your pension using salary sacrifice, you and your employer will have to pay National Insurance (NI) on the extra amount. If your pension contributions are £2,000 or less, this change will not affect you.

As a quick reminder, salary sacrifice means you give up part of your salary for a pension contribution. This reduces the amount of National Insurance you pay.

Myth buster: The change in 2029 does not affect the income tax relief you currently receive on pension contributions. Paying into a pension still remains a tax efficient way of saving for your future

The State Pension is rising

The government will keep the triple lock. The full new State Pension will rise by 4.8% in April 2026, boosting payments by £574.50, and bringing the total up to £12,547.60 a year.  

The Chanceller also confirmed that the government is committed to maintaining the pension triple lock. This is what’s used to decide how much to increase the State Pension by: whichever is highest out of average wage growth, inflation, or 2.5%.

You can read more about the triple lock and what it means at Money Helper, and about the State Pension at Gov.uk.

A reminder that inheritance tax could apply to pensions from 2027

At the moment, pension don’t usually form part of your ‘estate’ when you die, so inheritance tax (IHT) doesn’t currently apply to them.   

But the Autumn Budget included a reminder that, from April 2027, unused pension savings and death benefits will be treated as part of your estate. This means they could be subject to inheritance tax (IHT) in future.  

Remember, IHT is a tax that might need to be paid when you die – but only if the value of your estate is above a threshold of £325,000. Your threshold may be even higher depending on who you leave your estate to. The value of your estate includes things like property and your belongings, and tax is only paid on the amount that’s above your threshold.  

The government will announce more details about how IHT will work in relation to pensions closer to 2027. When we have those details, we’ll update our website with more information.  

No change to the 25% tax-free cash lump sum

You can still take up to 25% of your pension benefits as a tax-free lump sum, subject to a maximum of £268,275 (or a higher protected amount if applicable). This limit is known as the Lump Sum Allowance (LSA). The LSA is the maximum amount you can receive tax-free when you access your pension benefits.

The Autumn Budget this year confirmed that no changes have been made to these rules.