John Batty, Technical Manager, gives a high-level pensions perspective of the UK Budget delivered by Rachel Reeves, UK Chanceller of the Exchequer, on Wednesday 26 November 2025.
An “interesting” budget in a political sense and not much by way of surprise given the number of leaks in the previous six or seven weeks (and the OBR forecast within an hour of the actual announcement!). There was a total of 43 tax rises, meaning the UK now has its highest tax burden in decades and as a result low growth is (not surprisingly) predicted.
One interesting change was the introduction of a National Insurance charge on payments made to a UK pension scheme by way of salary sacrifice. From April 2029, the amount employees can contribute to pensions via salary sacrifice without paying National Insurance will be capped at £2,000 per year. This effectively removes one of the major benefits of a popular way of contributing to a pension scheme. This measure is expected to raise £4.7bn in 2029–30 and £2.6bn in 2030–31. While the UK Government argues this targets high earners who benefit most from the current system, there are concerns it could discourage pension saving.
Other than that, from a pension point of view there was little to report, other than a few clarifications on how Inheritance Tax payments on pensions will work when the changes announced in Autumn 2024 come into practice. [Read more on that here]
We also had confirmation that Inheritance Tax reliefs can transfer between spouses - though there is still a potential issue if the surviving spouse is not a long-term UK resident (previously ‘non domicile’). Something to bear in mind - particularly for those who are non-UK resident, with UK pension funds or other UK-based assets.
The fact that there was no change to the Overseas Transfer Allowance (OTA) and Overseas Transfer Charge (OTC) means that those with larger UK pension funds (up to c£1 million) who are non-UK resident can still transfer these overseas without having to pay this charge (subject to having available OTA), although the requirement to transfer to a pension fund (QROPS) established in their country of residence in order to be exempt from the OTC still remains.
Finally, there was also no change to the maximum tax-free lump-sum on benefit withdrawals from UK pension schemes. The LSA (Lump Sum Allowance) remains at 25% (up to the current cap of £268,275) This did have a number of people with UK pensions (and those with more recent UK pension transfers into QROPS) unsure whether to take the lump sum now or later, from fear that the amount they would be able to take tax free may be reduced.
John Batty
Technical Sales Manager
