POT OF LUCK
Six major pension changes coming in 2025 you need to know – including a pay rise
Read on to find out how much better off you could be next year
MILLIONS of pensioners will get a pay rise in April next year thanks to boosts to the state pension and Pension Credit.
Those are just two changes coming in 2025 that will impact people's retirement funds.
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Other key changes to be aware of include ongoing plans to change how pensions work for inheritance tax purposes and pension dashboards finally becoming a reality.
Here’s everything that is currently planned for next year for pensions, and what it means for your wallet.
State pension increase
The state pension will increase by 4.1% in April 2025, thanks to something known as the "triple lock" guarantee.
The triple lock guarantees that the benefit will rise by the highest of inflation, average earnings growth or 2.5%.
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This year, earnings growth was the biggest factor, and so the government has confirmed that the state pension will increase from £221.20 a week to £230.25.
This amounts to around £470 extra a year for someone who gets the full amount.
Meanwhile, the full, old basic state pension for people who retired before 2016 will increase to £176.45 per week.
Currently, it is worth £169.50 per week, or £8,814 per year.
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The additional state pension is an earnings-related entitlement consisting of the State Second Pension (S2P) or its predecessor, the State Earnings-Related Pension Scheme (SERPS).
This is not triple-locked and so will rise in line with the Consumer Prices Index (CPI) inflation rate of 1.7%.
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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% from April 2025.
Currently, single people get their income topped up to £218.15 per week, while couples will be boosted to £332.95.
How does the state pension work?
AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people's National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
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% 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.
Pensions dashboard
The pensions dashboard project has been in the pipeline for several years now, but it's now due to come into force from next year.
If it’s successful, it will allow you to see all your pensions savings – including your state pension – in one place.
This will help people to plan better, and should also reduce the problem of lost or forgotten pension pots.
All schemes and providers are legally required to be connected to the pensions dashboard and be ready to respond to requests for pensions information by 31 October 2026 at the latest.
However, the government has set target deadlines for larger schemes starting next year.
Every scheme with more than 1,000 members has a staging date in 2025, with medium schemes joining in 2026.
Inheritance tax changes
The government is planning to change the way that pension pots work for inheritance tax purposes.
At the moment, defined contribution pensions - where savers build up a pot of money for retirement - are typically not included as part of the estate when someone dies, which means that you don’t pay inheritance tax on them.
In the Budget, the government announced that it is planning to reform this by 2027.
This will involve some tricky untangling of trust laws, so there will likely be more updates around this over the next two years.
It could mean that some people are paying double tax on pensions through both income and inheritance tax, which would mean a tax rate of up to 67% in total.
It's important to look out for further announcements next year if your pension could put you above inheritance tax thresholds, as it may change the way you plan your retirement spending.
Auto-enrolment changes
A pensions act passed in 2023, gave the government the power to reduce the lower age limit for auto-enrolment and reducing the lower earnings limit for qualifying earnings.
Currently, the age limit is 21, although younger employees can choose to opt into schemes if they want to.
The lower earnings limit means that people do not contribute on income below £6,240, and removing it would mean auto-enrolment contributions are made from the first pound of earnings.
During the passage of the Act, the Government confirmed its intention to reduce the lower age limit to 18 years old.
In response to a written question in October 2023, then-Pensions Minister, Laura Trott, said that the Government will consult on the detailed implementation at the earliest opportunity and report to Parliament.
However, despite this, there has not yet been an announcement about when – if ever – the rules will change.
This could be something that’s announced or updated in 2025, potentially in the budget.
Pension superfunds
On November 14, Rachel Reeves delivered her first Mansion House speech in which she said that she wanted to introduce reforms that would create so-called "pension superfunds".
The idea is to have fewer schemes that are bigger and can generate more income for savers because of their larger scale.
Two key measures have been proposed.
The first is to introduce minimum size requirements for multi-employer schemes and changing the rules to allow bulk transfers into schemes without individual savers’ consent.
These are significant changes, and the government is consulting on them.
The consultation closes on January 16, 2025.
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New legislation could be included in next year’s Pension Schemes Bill.
One concern for the public may be the prospect of being moved from well-governed and high performing master trusts that do not meet the proposed size threshold, depending on outcomes of the consultation.
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