HL UK Pensions Law Digest: Autumn Statement 26 November 2025 - pension aspects

Salary sacrifice

As had been widely anticipated, the National Insurance contributions (NICs) benefit of paying employee pension contributions via salary sacrifice arrangements will be removed for contributions over £2,000 per year from 2029.

Brief guidance issued alongside the Autumn Statement confirms that:

• All member pension contributions (including those made through salary sacrifice) will continue to be exempt from Income Tax;
• Employee pension contributions above £2,000 per year may still be made via salary sacrifice, but will be subject to employer and employee National Insurance contributions (NICs);
• Employers will have to report the total amount of pension contributions sacrificed through their payroll software. HMRC intends to publish further guidance; and
• Employer pension contributions will continue to be exempt from employer and employee NICs.

As a reminder, employers pay NICs at 15% on employee income above £5,000 per year. Employees pay NICs at 8% on annual income between £12,750 and £50,270 and at 2% on income above this level.

While many basic rate taxpayers are unlikely to contribute more than £2,000 per year to their pension, those who do so will be disproportionally impacted by the changes. An individual earning £35,000 per year who chooses to pay 10% pension contributions (£3,500) via salary sacrifice would have to pay additional NICs of £120 per year (8% x £1,500). In contrast, a higher rate taxpayer contributing £3,500 per year would pay additional NICs of only £30 (2% x £1,500).

For higher rate taxpayers in schemes operating relief at source (used by personal pension arrangements), continuing to pay pension contributions via salary sacrifice will ensure that they benefit from higher rate tax relief, without having to claim via their self-assessment tax return. It will also ensure that the benefit of the higher rate relief goes into their pension fund, rather than being taken as additional income.

The Society of Pension Professionals (SPP) has recently issued a paper exploring the implications of limiting NIC relief on pension contributions paid by salary sacrifice.

Inheritance tax and pensions

As announced alongside the Autumn Statement 2024, some death benefits from registered pension schemes will become liable to inheritance tax (IHT) for deaths on or after 6 April 2027.

The government has just announced that, in certain circumstances, personal representatives (PRs) will be able to direct pension scheme administrators (PSAs) to withhold 50% of pension death benefits for up to 15 months and to pay the IHT on the pension benefit direct to HMRC.

This move will be welcomed by estate practitioners, who were understandably concerned that PRs would become liable for IHT due on pension assets over which they had no control. Under previous proposals, only the beneficiary (not the PRs) could require a PSA to pay IHT on death benefits from a pension scheme.    

Surplus payments

From April 2027, “well-funded” defined benefit (DB) schemes will be allowed to pay surplus funds directly to members over normal minimum pension age (NMPA), where permitted by the scheme rules and the trustees.

No detail is given, but it seems likely this is intended to enable schemes to pay one-off bonuses to members from surplus, as an alternative to increasing ongoing benefits. Making single payments will be administratively much simpler than increasing benefits, as well as not increasing ongoing funding liabilities. However, restricting payments to those aged NMPA or over will risk complaints of unfairness from younger members.

Pre-1997 increases for Pension Protection Fund compensation

From January 2027, members with pre-1997 accrual in receipt of compensation from the Pension Protection Fund (PPF) or the Financial Assistance Scheme (FAS) will be given annual increases of CPI capped at 2.5%, where their original schemes provided this benefit.

The Budget Paper gives very little detail of how this increase will work in practice. In particular, it is silent on whether increases will be backdated, or simply applied to compensation at the level payable at 31 December 2025.

Increases to State Pension

The Basic State Pension and the new single-tier State Pension will increase by 4.8% from 6 April 2026.

Authored by Jill Clucas.