Autumn Budget: Key Pension Changes
The Autumn Budget introduced several significant changes affecting pensions. While some changes took effect immediately, others are being phased in over the coming years. This guide covers the key pension-related announcements and what they mean for your retirement planning.
Employer National Insurance Increase
The most impactful budget change for workplace pensions was the increase in employer National Insurance contributions:
- Rate increase: From 13.8% to 15%
- Threshold reduction: From £9,100 to £5,000 per employee
- Effective from: April 2025
While this is a cost on employers rather than employees, it has several implications for pensions:
Pensions and Inheritance Tax from April 2027
One of the biggest changes announced was bringing unused pension funds into the scope of inheritance tax (IHT) from April 2027. Currently, pensions can be passed on outside the estate, but from 2027:
- Unused defined contribution pension funds will be included in the estate for IHT purposes
- The standard 40% IHT rate will apply above the nil-rate band
- This changes the strategy of leaving pensions untouched as a tax-efficient inheritance vehicle
What Did Not Change
Several pension features were left unchanged by the budget:
- Annual Allowance: Remains at £60,000
- Tax relief on contributions: Continues at marginal rates
- 25% tax-free lump sum: No changes announced
- Pension access age: Still 55 (rising to 57 in 2028 as planned)
- Triple lock: Maintained for State Pension uprating
Impact on Different Groups
Employees
The employer NI increase may slow pay rises but makes salary sacrifice more attractive. If your employer offers salary sacrifice, consider switching to benefit from the additional NI savings.
Self-Employed
No direct changes to self-employed pension rules, but the freeze in income tax thresholds means pension contributions remain a key tax planning tool.
Retirees and Near-Retirees
The IHT change from 2027 is the biggest consideration. Review your drawdown strategy and consider whether drawing pension income earlier (and preserving ISAs and other assets) makes more sense for your estate.
Higher Earners
No changes to the tapered Annual Allowance. Higher earners continue to benefit significantly from pension tax relief at 40% or 45%.
Planning Actions Following the Budget
- Review salary sacrifice: If your employer offers it, the increased NI savings make it more valuable
- Estate planning review: The 2027 IHT change requires a fresh look at how pensions fit into your estate plan
- Drawdown strategy: Consider whether drawing pension income before other assets becomes more tax-efficient
- Maximise contributions: The Annual Allowance and tax relief remain generous — use them
- Seek professional advice: The interaction between pension, IHT, and income tax planning is complex
Timeline of Budget Pension Changes
| Date | Change |
|---|---|
| April 2025 | Employer NI rises to 15%, threshold drops to £5,000 |
| April 2026 | State Pension increases under triple lock to £230.25/week |
| April 2027 | Unused pension funds brought into scope of inheritance tax |
| April 2028 | Minimum pension access age rises from 55 to 57 |