Major pension changes coming in 2025 including a pay boost and a key deadline for boosting contributions

State pension

The state pension is set to increase by 4.1 per cent in April 2025, following the triple lock guarantee which ensures rises based on the highest of inflation, wage growth, or 2.5 per cent.

The increase will be determined by wage growth figures, pushing the full new state pension from £221.20 to £230.30 per week.

Those on the basic state pension will see their weekly payments rise from £169.50 to £176.45.

This change will affect all eligible pensioners, though some may face paying tax on their retirement funds for the first time as a result of the increase.

Pension Credit increase

Pension Credit is the main means-tested benefit for pensioners. For people who reached state pension age before 6 April 2016, it has two elements – Guarantee Credit and Savings Credit.

This top-up benefit for pensioners on very low incomes will also increase by 4.1 per cent from April 2025. Currently, single people get their income topped up to £218.15 per week, while couples will be boosted to £332.95.

From April 2025, this will rise to £227.10 and £346.60 respectively. That means single retirees on Pension Credit will be £465.40 a year better off, while couples will get an extra £709.80.

People who retired before April 6, 2016 and receive savings credit will also get a boost. The maximum award amount will increase by 1.7 per cent in line with CPI inflation from £17.01 to £17.30 a week for singles, and from £19.04 to £19.36 a week for couples.

National Insurance

A crucial deadline for National Insurance contributions is approaching in April 2025, affecting future state pension entitlements.

Most people need 35 qualifying years on their National Insurance record to claim the full new state pension, with a minimum of ten years required to receive any amount.

Currently, individuals can purchase missing years dating back to 2006 to fill gaps in their record.

However, after April 6, 2025, this window will be significantly reduced, with people only able to go back six tax years to make up for missing contributions.

Those with incomplete records risk receiving a reduced state pension in retirement if they fail to act before the deadline.

Pensions dashboard

The first pension providers will begin connecting to the long-awaited pensions dashboard from April 30, 2025. All pension schemes must complete their connection to the system by October 31, 2026.

The pensions dashboard, operated through the Money and Pensions Service, will allow people to view all their pension pots in one centralised location.

This new system aims to prevent people from losing track of smaller retirement pots by providing a comprehensive overview of their pension savings.

The dashboard represents a significant step forward in helping people manage their retirement planning more effectively.

Extra pension support

The Financial Conduct Authority has proposed new measures that could see financial firms offering free bespoke pension advice to savers.

The FCA will seek views on these proposals until mid-February 2025, with plans to consult on the new framework rules in summer 2025.

'Modernised' pension scheme could be rolled out

Meanwhile, a new type of workplace pension known as Collective Defined Contribution (CDC) is set to expand in 2025.CDC schemes pool employer and member contributions into a collective investment fund, offering an alternative to traditional defined benefit and defined contribution schemes.

Royal Mail became the first company to launch a CDC scheme this year, with the Government planning to introduce legislation in 2025 for wider implementation.

Auto enrolment

The future of proposed changes to pension auto-enrolment rules remains uncertain following an indefinite delay to a major review of pensions adequacy.

Current rules require workers to be aged 22 and earn above £10,000 to be automatically enrolled in workplace pensions. Plans to lower the age threshold to 18 and abolish the lower earnings limit of £6,240 have been put on hold.

These changes were originally scheduled for implementation by the mid-2020s, aiming to encourage younger workers to start saving for retirement earlier.

The delay affects millions of workers who would have benefited from earlier pension contributions under the proposed reforms.

Inheritance tax changes

Some people are paying double tax on pensions through both income and inheritance tax, which would mean a tax rate of up to 67 per cent in total.

The changes come following the Budget where the Chancellor announced pensions would now be included as part of the estate when someone dies

This is set to take place by 2027, but the complicated nature means there will likely be more updates around this over the next two years.