2025 Spring Statement completely silent on pensions
Following the Autumn Budget, the government’s main fiscal event of the year, Reeves today set out the government’s ‘Spring Statement’, providing an update on the latest economic forecasts and reiterating many of the sentiments previously made.
Despite Reeves remaining silent on pensions within the Spring Statement, the country will see many of the changes made in the Autumn Budget coming into effect from April 2025.
Triple Lock maintained
The Triple Lock, introduced in 2011, promises that the State Pension will rise each year by the highest of either price inflation (measured by CPI), average earnings growth or 2.5% and guarantees that the annual State Pension increase will never lag any of these measures.
Reeves announced in the Autumn Budget that the Triple Lock would be maintained for April 2025. This didn’t come as a big surprise considering the government had previously promised to maintain the Triple Lock for the duration of this parliament, ie until August 2029. However, over recent months, due to the current economic backdrop and the ‘need to raise some much-needed cash’, there has been much speculation around whether the government will continue to ‘maintain’ the Triple Lock, whilst amending the formula used to calculate it, making it less generous for pensioners.
Sarah Garnish, a Pensions Consultant at Quantum Advisory, said:
“It seems quite clear that there are decisions that need to be made by the government around both the Triple Lock and tax-thresholds. Time will only tell as to who/what takes priority when making that decision.”
State Pension
April 2025 will see the State Pension rise by 4.1% in line with the growth in the national average earnings, ie an increase of £470 to the full State Pension, taking it up to 11,973 per annum.
Sarah Garnish, a Pensions Consultant at Quantum Advisory, said:
“An increase in the State Pension is very much welcomed by pensioners. However, with the State Pension rising each year, whilst the tax thresholds remain frozen until at least 2028, it is only a matter of time before the State Pension overtakes the lower tax-threshold, resulting in pensioners receiving State Pension alone being subject to income tax charges!
“With the Retirement Living Standards suggesting that a single person would need at least £14,400 per annum just to cover a ‘minimum’ retirement lifestyle, taxing pensioners receiving much less than this seems inappropriate. This is something the government will need to review imminently. Bringing forward the freeze on tax-thresholds would be one way of achieving this, but would mean additional costs for the government, another would be to change the formula used to calculate the State Pension, which would be very unpopular, but speculation seems to dictate that this may be the way forward.”
Employer National Insurance thresholds and contributions
As announced in the Autumn Budget, from April 2025 employers will pay National Insurance Contributions at the increased rate of 15% on earnings above the newly lowered threshold of £96.15 per week.
Understandably employers will have spent the past six months quantifying the impact this change will have, deducing ways of recuperating the additional costs and incorporating that into their future business strategies.
Sarah Garnish, a Pensions Consultant at Quantum Advisory, said:
“One form of recuperation employers may not have considered however is the additional saving they will make if their employees pay their pension contributions via salary sacrifice.
“Salary sacrifice is a tax efficient way for both employers and employees to pay into a workplace pension. Salary sacrifice is where an employee accepts a lower salary, but in return the employer pays all pension contributions resulting in a National Insurance saving, for both the employer and the employee.
“The increase in the employer National Insurance contribution rate will mean a bigger saving for employers. This could be a good time for employers to implement the use of salary sacrifice for employee pension contributions, not only will the employer see a saving, but it will encourage employees to think about saving for retirement and also provide them with an increase in their current take home pay, a win-win for everyone.
“For employers who don’t currently offer this to their employees, now may be the perfect time to start.”
