The British pension landscape is changing: a rising State Pension age, new rules about the lifetime allowance (LTA), new inheritance tax (IHT) rules about pension pots, and more.
To help you avoid getting caught off guard, we’ve put together this article – summarising how the pension landscape is evolving, how it might affect you, and ideas on how to navigate it all.
We hope these insights are helpful to you. Please contact us if you would like to discuss your retirement goals or situation with a member of our team.
Rising State Pension Age
In 2025, the age at which men and women can start claiming the State Pension is 66. However, between 2026 and 2028, this is expected to rise to 67.
Currently, the expectation is that the age rise will occur on 6 May 2026. In the more distant future (e.g. between 2044 and 2046), it could rise further to 68.
Naturally, the rising State Pension age matters to many people because the State Pension forms a core pillar of their retirement plans. Approximately 13% of all pensioners rely on it as their sole income, and over 12 million people currently receive it.
The implication? It may be necessary to review your retirement timeline. If you were planning to stop work at 65, consider how you’ll cover your income needs until the State Pension kicks in.
Abolition of the Lifetime Allowance (LTA)
In previous years, there was a total “cap” on the total value an individual could save inside their pensions (tax-free). The standard Lifetime Allowance (LTA) stood at £1,073,100, and a charge was incurred on the excess under certain conditions – e.g. 55% on an excess lump sum.
This LTA was abolished on 6 April 2024. However, a new system has arisen in its place, which is arguably just as complicated (perhaps more so!).
One key change to be aware of concerns your tax-free lump sum. Typically, from the age of 55 (rising to 57 in 2028), an individual can withdraw up to 25% of their pension without incurring income tax. However, the new lump sum allowance (LSA) puts a cap on this – i.e. a maximum of £268,275.
The LTA change could affect many people. For instance, if you previously paused contributions (to avoid breaching the LTA), it might be possible to restart them – taking advantage of pension tax relief in the process.
Annual Allowance Changes
Since we mentioned tax relief, here is another recent change to be aware of.
For a while, the maximum someone could contribute to their pension each year while claiming tax relief was £40,000 (in some instances, it was possible to extend this – e.g., using the “carry forward rules”). However, since 2024-25, the maximum Annual Allowance has increased to £60,000.
This is important because it potentially opens up more room for saving, especially if you are entering your later working years (when earnings tend to peak).
Consider sitting with a financial adviser to explore how to close the gap between your current financial position and where you want to be in retirement. This could be a valuable opportunity to build your pension wealth.
Bear in mind that specific rules can trip many people up if they take a “DIY approach” to pension planning. In particular, watch out for the Money Purchase Annual Allowance (MPAA), which puts a £10,000 “cap” on your Annual Allowance if triggered.
Pensions & Inheritance Tax (IHT)
In the 2024 Autumn Budget, Chancellor Reeves announced a significant change to defined contribution (DC) pensions – AKA pension “pots” – from April 2027. At that point, unused funds in a DC pension would fall within someone’s estate upon death.
This is significant because it means many individuals’ pensions will soon fall into the inheritance tax (IHT) “net” (previously, pension pots were excluded). For those with substantial wealth in their pensions, this could make a significant difference.
In 2025–26, the standard Inheritance Tax (IHT) rate is 40% on the value of an individual’s estate once it exceeds £325,000. However, if a qualifying residence is passed to a direct descendant, the estate may also benefit from the Residence Nil Rate Band (RNRB), which provides an additional threshold of up to £175,000, potentially increasing the total tax-free allowance to £500,000. If you have £1m in a pension pot and you have already maximised your other IHT allowances, then £400,000 could be taken away upon death.
This change is unlikely to affect most people. However, for many individuals, the change could be significant. Speak with a financial planner if you think you may be affected. Other strategies may be available to mitigate needless tax (e.g. using life insurance to settle a future IHT bill).
Invitation
These are just a handful of the key changes about pensions to know about in 2025. There are others we could discuss if more time and space were available.
To cover all the bases and apply the information to your specific goals and situation, please don’t hesitate to get in touch. We’d love to speak with you to ensure you’re taking the proper steps to safeguard your financial future.
The content in this article was correct on 1st July 2025
The value of your investment can go down as well as up and you may get back less than the amount invested
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