Key points from the Budget
16 December 2025
On 26 November 2025, the Chancellor delivered the government’s latest Budget. Here’s a breakdown of the main pension points and what they could mean for you.
Salary sacrifice
If you're currently contributing to your PSPS pension using Pensions Plus, you should be aware of the changes to something called salary sacrifice (also known as salary exchange).
In a salary sacrifice arrangement like Pensions Plus, instead of paying pension contributions from your wages, your gross salary is reduced by the cost of the benefit. The amount then becomes a direct payment from your employer to your pension scheme. This means you don't have to pay National Insurance on your pension contributions.
From April 2029, any salary sacrifice contributions you make over £2,000 for each tax year will be paid as ordinary employee contributions. This will mean you won't make National Insurance savings on contributions above that threshold.
Worked examples
If you earn under £40,000 a year and pay in 5% or less to your pension scheme using salary sacrifice, there won’t be any change to how much you pay, because your contributions would fall below the £2,000 annual threshold.
If you earn £50,000 a year, and you and your employer both pay 5% in contributions, from April 2029 you would have to pay £40 a year extra in National Insurance contributions, and your employer would pay an extra £75.
You can download a guide to Pensions Plus to find out more about how it works. Note that the guide currently reflects the position up to April 2029. We will publish an updated version in due course.
Other Budget takeaways
There had been rumours in the run-up to the Budget that the option to take up to 25% of your pension benefits as a tax-free cash sum at retirement could be removed. This did not happen, and the rules around tax-free cash remain unchanged.
The State Pension will increase by 4.8% from April 2026, in keeping with the government's 'Triple Lock' promise, which guarantees that it will rise each year by the highest of inflation, wage growth, or a figure of 2.5%.