On Wednesday 26th November, the Chancellor announced her plans surrounding government spending and fiscal decisions impacting the coming years. Announcements were made, amongst other things, about changes to the National Living Wage, EV mileage tax and dividends tax for business directors. There were also a number of announcements made regarding pensions.

In this article we’ll explain the changes to the State Pension from April 2026, as well as future changes to workplace pensions. If you have any further questions about how the changes announced will impact you, contact our team. Call us on 0116 222 0119 or email us on hi@willdaywm.co.uk.

Workplace pension salary sacrifice

One-third of private sector employees and 10% of public sector workers use salary sacrifice for saving into pensions. Analysis by HMRC found that 7.7 million employees used salary sacrifice for pension contributions in 2024. Salary sacrifice means that an agreement is made between the employee and employer to give up a portion of their salary. The employer instead pays the equivalent amount into the workplace pension. This scheme is intended to encourage employees to invest in their workplace pension. This benefits both employee and employer, as both save on the National Insurance due on the amount.

In the Autumn Budget, Reeves announced that from April 2029, there will be a £2,000 per year cap on contributions made in this manner. Employees will be able to contribute more than £2,000 each year through salary sacrifice, with any investment above this amount being subject to National Insurance by both the employer and employee. Pensions contributions will continue to be eligible for income tax relief, even once the cap is surpassed.

Reeves justified the cap by saying that low and middle-income earners will be able to continue using the scheme “without paying any more in tax”. This is because they are less likely to reach the contribution cap. However, those contributing the standard 8% contributions will need to be earning £25,000 or less to not be impacted by this change. The cap will not be brought in until April 2029, giving businesses over three years to decide their next action. They may stop offering this salary sacrifice benefit to employees, or find an alternative offering. Alternatively, they may simply accept the increase in National Insurance.

State Pension

The State Pension is in place to ensure a baseline of financial security for pensioners in retirement. Successive governments since 2011 have protected the State Pension with the so-called Pension Triple Lock. This is in place to protect the State Pension from inflation and ensure pensioners don’t receive less money in real terms. The Triple Lock guarantees that each year in April, the State Pension rises by the highest of three factors:

1. The level of inflation (as determined by the Consumer Prices Index) the previous September
2. The average increase in earnings the previous July
3. A flat rate of 2.5%

You can read more about the Pension Triple Lock in our earlier blog post.

As part of the Autumn Budget announcement, Chancellor Reeves announced that the State Pension will rise by 4.8% in April 2026. This is due to the average increase in earnings being this value in July 2025. The new State Pension will therefore rise to £241.30 per week, or £12,547.60 per year, an increase of over £570.

Announcements affecting pensions in the near future

Whilst the Chancellor avoided increasing income tax explicitly, she did apply what is known as a ‘stealth tax rise’. She announced an extension to the threshold freeze for tax rates, previously frozen until 2028, until 2031. Whilst the thresholds are frozen, employees receiving a cost-of-living pay rise, for example, could end up in paying more in income tax as they could fall into a higher threshold.

For many pensioners this means that, assuming the State Pension Triple Lock is applied again in April 2027, their income will breach the personal allowance threshold of £12,570. In normal circumstances, this would make anything above the threshold subject to income tax.

However, when announcing the extension to the threshold freeze for tax rates, Rachel Reeves did announce one caveat. If your only source of income is the State Pension, then you will be able to complete a simple self-assessment and no tax will be due on this income. However if you are also in receipt of other sources of income, e.g. a workplace or personal pension, all sources will be taxable, including your State Pension.

Expected announcements that didn’t come to pass

There were a number of expected policies around pensions that were not announced in the Autumn Budget. We’ve summarised these below:

Workplace pension auto-enrolment

Commentators speculated that the government may expand eligibility for auto-enrolment into workplace pensions to include the self-employed. This may fall into the remit of the newly revived Pensions Commission. They will explore what is preventing workers from saving sufficiently into pensions. Read more about the Commission’s objectives in our blog post from earlier in the year.

Tax-free lump sum

It was a significant area of speculation that the Chancellor may choose to lower the tax-free lump sum for pension withdrawals. This is currently set at 25%, capped for most at £268,275. By increasing the amount of pension pots subject the tax, the government could have raised significant income. There was no change to the tax-free lump sum for pension withdrawals announced in the Autumn Budget.

Tax relief on pension contributions

Pension contributions currently enjoy tax relief of 20% for basic rate tax payers. Higher and additional rate tax payers receive 40% and 45% tax relief respectively, with the additional 20%/25% being claimed via self-assessment tax forms. It was suggested that tax relief could have been simplified to a single flat-rate. However no announcement was made concerning this.

Concerned about recent announcements?

If any of the recent announcements regarding pensions or ISAs have left you confused about the impact on your investments, contact our team. Our experienced team will discuss your circumstances with you. They’ll advise on any changes that will allow you to continue investing for the retirement you’re hoping for.

Call us on 0116 222 0119 or email us on hi@willdaywm.co.uk.