November’s Budget announced an important change to how pensions are to be taxed and used in future years. While this change will not take effect immediately, now is a good time to consider how it could affect your future retirement plans.
Salary sacrifice: what’s changing?
One of the most controversial Autumn Budget announcements was to the salary sacrifice scheme, a popular way to boost pension contributions while reducing National Insurance (NI). From April 2029, only the first £2,000 of annual salary-sacrificed pension contributions will be exempt from NI. Any contributions above that level will be subject to the usual employer and employee NI charges. Income tax relief will still apply, but the overall saving will be smaller for higher contributions.
The change will mainly affect higher earners who use salary sacrifice to make larger pension contributions, particularly those who use it to keep their salary below the £100,000 threshold where the personal allowance begins to taper, or to remain eligible for certain childcare benefits.
What can you do now?
One positive is that the changes to salary sacrifice do not take effect until April 2029, leaving time to explore your options. For example, if you receive a bonus from your employer, paying some or all of it into a pension rather than taking it as income can be particularly efficient, as the full amount is invested for retirement rather than being reduced by tax and NI.
This may suit both higher and basic-rate taxpayers and, in some cases, can help prevent income being pushed into a higher tax band, provided total pension contributions remain within the annual allowance.
Time for a pension tidy up?
If you’re reviewing your current pension planning, now might also be a good time to consider a ‘spring clean’. Many people build up several pension pots over the course of their working life, especially after changing jobs, taking career breaks, or being self-employed at different times. You might have even forgotten about a pension or two. According to Pensions UK, around £3.1 billion is sitting untouched in ‘lost’ pension pots.
Consolidating older pensions into one larger pot can make it easier to track performance. It may also reduce charges and simplify decisions as retirement approaches. Before consolidating, it is important to check whether any existing pensions include valuable features, such as guaranteed benefits or protected tax-free cash, that may be lost if they are moved.
The importance of cashflow modelling
Revisiting cashflow modelling can be especially helpful, by exploring how different contribution levels can affect both your short-term finances and long-term outcomes. It can also show how even small adjustments now could make a meaningful difference to your retirement. You can find out more about our approach to cashflow modelling here: What is cashflow modelling?
A final word
With the new rules not starting until April 2029, there is still a window in which you can review your existing pension arrangements and take positive steps as the rule change gets closer. If you would like personalised guidance on how the Budget changes could affect your pension and retirement planning, get in touch via email at hello@s4financial.co.uk, call 01276 34932, or use the contact us button below.