Chancellor Rachel Reeves delivered the most eagerly anticipated Budget speech of recent years – with the additional challenge of a highly controversial leak.
Policies had been leaked and speculated on for weeks leading up to this week’s announcement, but the Office for Budget Responsibility’s accidental publication of its report before Reeves stood up to speak added further drama.
The House of Commons was packed and rowdy, with the deputy speaker intervening on multiple occasions to plead for calm and call out individuals for being particularly loud.
As widely anticipated, the government will cap national insurance relief on salary sacrifice pension contributions at £2,000 a year, a move opposed by much of the pensions industry.
There were also changes affecting some members of the Pension Protection Fund and Financial Assistance Scheme, and a promise for former coal miners to share in their pension scheme’s significant investment reserve.
Here are Pensions Expert’s highlights from the speech. More will be added as the fallout from the announcement becomes clear.
Salary sacrifice on pensions is to be capped at £2,000 from April 2029, prompting widespread ire across the retirement industry. Any contributions exceeding the new cap will therefore attract both employee and employer national insurance contributions.
It is forecast that this change will raise £4.7bn in the 2029-30 financial year, and £2.6bn in 2030-31. In her speech, the chancellor claimed that higher-rate taxpayers were the main beneficiaries of salary sacrifice arrangements, and called the cap a “pragmatic step”.
Overfunded defined benefit pension schemes will be able to share surpluses with members through one-off payments without incurring large tax bills, the government has announced. In the Budget document, the Treasury said it would reduce the tax charge levied on payments directly to pensioner members from DB scheme surpluses.
“This will make it easier for members to benefit and for trustees and employers to agree surplus extraction, boosting investment across the economy,” the document stated.
It also means that schemes can share surpluses without permanently increasing pension payments, which can have an impact on liabilities.
The government will transfer the £2.3bn investment reserve of the British Coal Staff Superannuation Scheme (BCSSS) to the scheme’s trustees for payment as additional benefits to members.
Chancellor Rachel Reeves told parliament: “I have heard from Labour coalfield MPs… and today, I can announce that I will transfer the investment [reserve] to ensure men and women who worked in our coal industry get a fair deal in their retirement.”
A rule change contained in the main Budget document will see personal representatives discharged from a liability for payment of IHT on pensions discovered after they have received clearance from HM Revenue & Customs. This will be legislated for through the 2025-26 Finance Bill and take effect from 6 April 2027.
Reactions have been split, with commentators applauding the flexibility this should afford personal representatives while raising concerns about the increasing integration between IHT and pensions.
CPI-linked increases for members of the Pension Protection Fund (PPF) and the Financial Assistance Scheme (FAS) will be introduced for pre-1997 accruals, the chancellor has announced.
The details are still to be confirmed, but the Budget document stated that the CPI-linked increases would be capped at 2.5% a year, and would also be limited to members of schemes “where their original schemes provided this benefit”.
Ahead of the Budget speech on Wednesday, the government said it had accepted recommendations from the Low Pay Commission to increase the National Living Wage and National Minimum Wage – boosting the pay packets of around 2.7 million workers.
Standard Life estimates that a full-time employee earning the new National Living Wage could accumulate a pension pot worth around £208,000 in today’s terms by retirement age.
