Ahead of the new financial year, business owners and the self-employed should be aware of important changes to pensions.
Saving for a private pension can be difficult if you run your own business, but getting the most out of your finances now can help to set you up for the future.
Read on for five key pension changes for the 2025-26 tax year and what they could mean for you.
5 pension changes for 2025
1. State pension increase
The state pension is set to increase in line with inflation by 4.1 per cent from 5 April 2025.
If you’re eligible for the new state pension (men born after 5 April 1961 and women born after 5 April 1953), this means you’ll get £230.25 a week, up from £221.20 a week.
For those that receive the basic state pension (men born before 5 April 1961 and women born before 5 April 1953), the weekly amount will increase to £176.45, up from £169.50.
This year’s increases are lower than the 8.5 per cent boost in 2024, which saw state pension takings rise by up to £900 a year.
Due to the triple lock (read more below), the state pension should rise every year so expect a further increase in 2026.
2. Future of the triple lock remains uncertain
The future of the ‘triple lock’, which guarantees an annual state pension rise, is secure for now. But there could be changes to how it works during the current parliament or the next one.
The triple lock was introduced in 2011 and means that the state pension increases by whichever is the highest out of:
- 2.5 per cent
- average earnings growth
- inflation
For example, if average annual earnings growth and inflation are lower than 2.5 per cent, then the state pension will increase by that figure.
High inflation in recent years means the state pension has had some significant boosts. However, due to the huge cost of the state pension, the triple lock is a controversial subject.
It was reviewed by the previous Conservative government and has been labelled as a ‘fiscal risk’ by the Office for Budget Responsibility (OBR).
The state pension was estimated to cost £125 billion in 2023-24, making up 42 per cent of the entire welfare budget. The cost is set to rise further in the coming years due to the triple lock and an ageing population.
Despite this, it received cross-party support ahead of the 2024 general election, so will remain in place for the current parliament.
However, that doesn’t mean that the current government won’t attempt to reduce the impact of the triple lock by tweaking the criteria it uses to measure earnings.
Read more: Self-employed pension guide – how (and why) to get saving
3. Deadline to buy NI credits and top up state pension
Taxpayers have until 5 April 2025 to top up National Insurance (NI) credits and boost their state pension.
If you’ve taken a career break or time off to care for people, you could have gaps in your National Insurance record. To get the full state pension, you need at least 35 years of NI contributions.
You can use HMRC’s state pension forecast tool to see how much of the state pension you’re due based on your age and National Insurance record.
Usually, you can only fill in gaps for the past six years. However, the government has recently been allowing people to claim back up to 2006.
Take up of the scheme has been high, with the original closing deadline of April 2023 pushed back to July 2023 and then April 2025 due to high demand.
According to HMRC, 37,000 NI payments worth £35 million have been through its online service which launched in 2024.
4. Pensions dashboard edges closer
The pensions dashboard is a government project that has been in the works since 2016.
The initiative intends to bring people’s pension information together in one place. At the moment, people with various private pensions can find it difficult to know how much they’ve saved and how to access the money.
It’s been reported that the largest pension providers will have to provide their data by April 2025, with smaller organisations having until September 2026.
The public-facing version of the dashboard isn’t expected to go live until 2026 or 2027.
Read more: What’s the retirement age in the UK and when can I retire?
5. What next for pensions and inheritance tax?
As part of the Autumn Budget 2024, the government announced that from 6 April 2027 any unused pension funds would come under the scope of inheritance tax.
This means that when someone dies, the money left in their pension could be subject to inheritance tax at 40 per cent.
A technical consultation on the changes closed at the end of January. It’s expected that more details will be published at some point this year.
The changes have been criticised for adding extra complexity, as well as potential costs, to the inheritance process. It’s not yet clear which pension benefits will fall into the scope of inheritance tax, plus how the tax is expected to be paid.
It’s been predicted that people may gift more of their money to loved ones during their lifetimes to reduce the impact of inheritance tax.
While the proposed changes are unpopular, the government estimates that they’ll only impact an extra 10,500 estates – and increase inheritance tax bills for 38,000 people. This is because the inheritance tax threshold remains relatively high at £325,000.
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