Staying informed and maximising available tax benefits for a comfortable retirement
Last November’s Autumn Budget 2025 Statement outlined a series of updates for pensioners and those saving for retirement. While a welcome increase to the State Pension was confirmed for April, the Chancellor also announced a future cap on salary-sacrifice pension contributions, which will impact many workplace pension savers.
Understanding these developments is essential for planning your financial future. Although the above-inflation increase in the State Pension provides some immediate relief, the new restrictions on salary sacrifice may impact those contributing to certain workplace schemes. Here, we look at what’s changing, what remains the same, and why these announcements should not deter you from prioritising your retirement savings.
Good news on tax-free cash and relief
After months of speculation that the Chancellor might target pension tax benefits, both tax-free cash allowances and pension tax relief remained untouched. This provides significant relief for savers. Currently, you can typically take up to 25% of your pension pot as a tax-free lump sum once you reach the age of 55 (which will increase to 57 in 2028), subject to a maximum of £268,275, subject to protections.
Additionally, there were no modifications to the valuable Income Tax relief available on pension contributions. This relief remains applied at an individual’s marginal rate of Income Tax, meaning higher rate taxpayers receive more tax back on their contributions. These consistencies provide a stable foundation for long-term retirement planning, allowing you to continue building your pension with confidence in the current tax benefits.
State Pension boosted by triple lock
The Chancellor confirmed that the State Pension will increase by 4.8% in the 2026/27 tax year, thanks to the government’s triple lock guarantee. This policy ensures that the State Pension rises each year based on whichever of the following three measures is highest: average earnings growth, September’s Consumer Prices Index (CPI) inflation rate or a baseline of 2.5%.
The new full State Pension will rise from £230.25 a week to £241.30 in April, adding an extra £575 annually. For those claiming the basic State Pension (who reached State Pension age before April 2016), weekly payments will increase from £176.45 to £184.90. However, the amount you get depends on your personal National Insurance record.
Cap on salary sacrifice contributions
A major change announced in the Budget is the cap on salary sacrifice pension contributions. From April 2029, any contributions made through this method exceeding £2,000 annually will be liable for National Insurance. Salary sacrifice remains a popular feature of many workplace schemes, enabling you to exchange part of your gross salary for an employer pension contribution. This reduces your taxable income and your National Insurance liability.
Under current auto-enrolment minimums, individuals earning less than £40,000 annually are unlikely to be affected by this cap. For higher earners, the impact will depend on how employers customise their pension schemes. It could lead to many individuals seeing their monthly National Insurance contributions rise and their take-home pay fall. Despite this change, the overall tax advantages of pension saving remain substantial and should not be overlooked.
Staying informed is your best strategy
The Autumn Budget has undoubtedly brought a mixture of positive and challenging news for those planning for retirement. While the increase in the State Pension offers a welcome boost, upcoming changes to salary sacrifice make it more important than ever to reassess your existing pension strategy and understand how you could be affected.
Staying informed and maximising available tax benefits will help ensure your retirement savings continue to work as hard as possible for you. Proactive planning is the best defence against policy changes, enabling you to adapt and maintain a strong financial footing for the future.
This article is for information purposes only and does not constitute tax, legal or financial advice. Tax treatment depends on individual circumstances and may change in the future. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available. investments can fall as well as rise in value, and you may get back less than you invest.
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