Soaring living costs continue to place retirement incomes under strain, with many people hoping that some of the changes due to be introduced at the start of the 2025/26 tax year in April might help these pressures start to ease.
There are certainly some welcome changes expected this year, including increases to the State Pension and Pension Credit, for example, but these may not be enough to meet eye-watering rises in energy and food bills seen in recent years. Fortunately, though, inflation is expected to remain lower than in previous years, with the Office for Budget Responsibility (OBR) predicting it’ll sit at around 2.6% by the end of 2025. This is still higher than the government’s 2% target.
Here, we look at some of the changes that have happened to pensions this tax year, alongside other benefits you may be entitled to, and potential ways to boost your pension.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
State Pension to increase
The State Pension will rise by 4.1% in April 2025, in line with earnings growth. This follows a 10.1% increase in April 2023 and an 8.5% increase in April 2024.
The triple lock guarantee means the State Pension increases each year by the highest of September’s inflation figure, earnings growth, or 2.5%. Find out more in our article What is the pension triple lock?
From April 2025, someone on a new full State Pension will see their payments go up from £221.20 a week in the current tax year year to £230.25 a week, while the old basic state pension is set to rise by £6.95 a week or £361.40 a year, to £176.45 a week. Read more in our articles What will the State Pension be in 2025? and How the State Pension works.
Taxation changes
Capital Gains Tax (CGT) was hiked in the 2024 Budget, with CGT rates rising from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers so that they now align with property rates. These changes came into effect on October 31, 2024.
It’s not the only bad news investors have faced over the past year. In April 2024, the Capital Gains Tax (CGT) allowance was reduced to £3,000, down from £6,000 in the 2023/24 tax year (down from £12,300 in the 2022/23 tax year). Similarly, the amount of dividend income you can earn before paying tax fell to £500 from April 2024, down from £1,000 in the previous tax year and £2,000 in 2022/23.
One way to reduce any potential Capital Gains Tax bill is to look at ways to lower the tax band you fall into. For example, if you are paid enough to just fall into the higher earnings tax band, you could consider increasing the amount you pay into your pension each year, so that you then fall into the basic rate of income tax. Bear in mind, however, that any money paid into your pension cannot be accessed until you reach the age of 55. Learn more in our guide When can I retire?
Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, said: “Making investments more tax efficient by topping up ISAs and pensions will continue to benefit an individual’s overall financial position over the long term, provided that money was not earmarked for more immediate needs. While money funnelled into a flexible ISA is still accessible, funds loaded into pension cannot be touched until the individual reaches 55 or 57 from 2028.”
Learn more in our guide Seven ways to beat the Budget 2024 Capital Gains Tax hike.
Pension Credit to increase
As many as 880,000 pensioners may be entitled to but are failing to claim Pension Credit, which could provide a valuable income boost of as much as £3,900 a year. It’s vital that you claim this money if you’re eligible, as it could make a real difference if you’re struggling financially, and it could help you to qualify for other benefits too (see below). This includes the Winter Fuel Payment, which is now means-tested. Find out more in our article Winter Fuel Payment: who is eligible, and how can I claim?
Pension Credit is a means-tested benefit and from April 2025 it can increase retirement income by up to £227.10 a week if you’re a single person, or £346.60 for couples, and may be higher in some situations, for example if you’re caring for someone. Read more in our article Pension Credit explained.
Find out more about Pension Credit and eligibility requirements in our guide Pension Credit Explained. If you think you might be eligible to claim it, you can make a claim by phone using the Pension Credit claim line on 0800 99 1234. If you’d rather make a paper application, you can request one on the above number, or you can download and print a Pension Claim form here.
You can find out if you’re eligible for Pension Credit and how much you can get using the Gov.uk Pension Credit calculator.
Pension providers to connect to pensions dashboard
Monitoring several pensions isn’t easy, especially if you’ve moved house a few times and forgotten to let your providers know your new address. As a result, around £26.6 billion is currently sitting in ‘lost’ pensions across the UK, according to the Pensions Policy Institute (PPI) and the Association of British Insurers (ABI).
The government wants to make it easier for people to keep track of their pensions with the long-awaited pensions dashboard, with 2025 expected to see the first pension schemes actually connecting to the system. The pensions dashboard will allow you to view information about all your pension savings, including your State Pension, on a single website. However, the government has not yet announced a firm date when consumers will be able to access their dashboards.
In the meantime, it’s well worth checking whether you have any lost or forgotten pensions that could boost your income in retirement. Learn more about how you might be able to track these down in our guide Tracing lost pensions – How to find my old pensions.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “It’s easy to lose track of pensions from old employers, but not tracking them down can leave you thousands of pounds worse off. If you think a pension has gone astray then contact the government’s Pension Tracing Service. You will need either the name of your employer or pension provider and they will give you contact details so you can get in touch.
“Once you’ve gathered your pensions together it might make sense to consolidate them. This could save you time, money and admin. However, before you do, make sure you aren’t incurring any expensive fees or missing out on valuable benefits such as guaranteed annuity rates.”
Find out more about pension consolidation in our article Should I consolidate my pensions?
Changes to employer National Insurance contributions to boost appeal of salary sacrifice
One of the biggest tax hikes announced in the October 2024 Budget which is due to come into effect in April 2025 is a substantial rise in employer National Insurance Contributions. One of the impacts of this change is that it will make pension schemes operating on a salary sacrifice basis more attractive to employers – which could mean more employees end up benefitting from them.
Gary Smith, Partner in Financial Planning and retirement specialist at Evelyn Partners said: ‘Employers will be looking to reduce costs and as part of this will review their benefit offering to ensure that they are getting value-for-money. Notably, an opportunity may arise for employers to offset some of this cost through the use of a salary sacrifice pension scheme, including bonus sacrifice, where that’s not already in place.’
A salary sacrifice arrangement is when you and your employer agree to reduce your pay in exchange for a particular benefit, often childcare, pension contributions or a company car. These benefits are not subject to income tax or NICs, so your taxable salary is reduced, making it a tax-efficient way to pay into a pension scheme.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: It won’t boost your take-home pay, but will cut your tax bill, and make your money go further, so it’s worth checking with your employer whether they offer this.”
Learn more about salary sacrifice and whether you could benefit from it in our article What is salary sacrifice? – Rest Less.
Extra benefits
If you are in receipt of certain pension benefits you may be entitled to additional money in 2025 to help you cover living costs.
- Cold weather payments: If you are receiving low-income benefits such as Pension Credit you should be entitled to automatic payments of £25 when your local temperature sits at an average of zero degrees celsius or below for at least seven consecutive days between 1 November and 31 March each year.
- Warm homes discount: You may be able to get £150 off your electricity bill as a one-off bill reduction, which is paid directly to your energy provider each year if you receive certain means-tested benefits such as the Guarantee Credit element of Pension Credit. Find out more about what help is available towards energy bills in our article Are you eligible for help with heating costs?
- Free TV licence: If you are a pensioner aged 74 or over and claiming Pension Credit you are entitled to receive a free TV licence, and a refund for any payments made while not being aware you were eligible, if that is the case.
Where to go for more help
It’s more important than ever to explore all the different ways you might be able to increase your retirement income. You can seek free guidance from the age of 50 and above from the Government’s Pension Wise service on your pension choices at retirement. You can call them on 0800 138 3944 to book a free appointment, or book one through their website.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
If you’re lucky enough to have a defined benefit or final salary scheme, you’ll get a guaranteed income at retirement which can make it much easier to plan your budget. Check with your scheme’s administrator if you’re not sure when this income will start being paid. Find out more in our article Your options at retirement.
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