Introduction to Pension Changes
The Chancellor has confirmed that the main pension allowances remain unchanged. However, a significant new cap on salary sacrifice arrangements will apply from April 2029. This measure aims to ensure fairness while maintaining the integrity of the pension system.
No Alterations to Core Allowances
Despite speculation about major pension changes to raise revenue, the annual allowance stays at £60,000. Carry-forward rules, which allow unused allowances from previous years, also remain intact. Similarly, the lump sum allowance continues at £268,275. These decisions provide stability for savers planning their retirement.
Pension Changes to Salary Sacrifice
Salary sacrifice arrangements have grown rapidly, benefiting higher earners disproportionately. Costs are projected to rise from £2.8 billion in 2016–17 to £8 billion by 2030–31. From April 2029, the government will introduce a cap of £2,000 per employee on salary sacrifice contributions exempt from National Insurance Contributions (NICs). Any amount above this limit will attract both employer and employee NICs. Standard pension contributions outside salary sacrifice will remain unaffected.
Commitment to the Triple Lock
The Chancellor reaffirmed the government’s pledge to maintain the Triple Lock on the State Pension throughout this parliament. Consequently, in April 2026, the State Pension will rise by 4.8%. The Triple Lock guarantees increases based on the highest of inflation, wage growth, or 2.5%, protecting pensioners against rising living costs.
Closing Loopholes and Future Planning
Starting 6 April 2027, the government will close a loophole that enables pensions to be used for inheritance tax planning. Under new rules, any unspent pension pots will fall within the scope of inheritance tax. These changes underline the government’s commitment to fairness and sustainability in pension policy.
