The State Pension changes in 2025: What they mean for you

Price Mann • May 14, 2025

The State Pension changes in 2025:

What they mean for you

Understanding your pension and how to maximise it.

The State Pension remains a foundation of retirement income for millions across the UK. Although private pensions and other investments often play a significant part in retirement plans, the State Pension provides a consistent baseline of support. Many people seek clear guidance on what to expect from the State Pension, especially when government policies evolve. Changes set for the 2025/26 tax year have prompted questions about how much pensioners will receive, how the system affects those who are planning to retire soon, and what individuals can do to stay informed. This guide addresses these questions and offers an overview of the updated State Pension system.

Overview of the new State Pension

The UK introduced the “new State Pension” for people who reach State Pension age on or after 6 April 2016. This new system replaced the old basic State Pension and additional State Pension (sometimes called SERPs or S2P). Its goal was to simplify retirement benefits and make them more transparent, but several changes have occurred over the years.

Under the new State Pension, you need at least ten “qualifying years” of National Insurance (NI) contributions to receive anything. You typically need 35 qualifying years to receive the full new State Pension. These are broad guidelines; some people who paid or received NI credits under the old system may have special situations, so it’s worth checking your own NI record to confirm your status.

From April 2025, the UK government will continue to determine State Pension amounts according to policies in place at that time. Although the official weekly figure for 2025/26 will depend on economic factors like inflation, average wage growth, and policy decisions, the triple lock (discussed in the next section) means that the new State Pension is expected to rise in line with either average earnings, inflation, or a minimum rate (2.5%), whichever is highest.

From April 2025, the full rate of the new State Pension will be £230.25 per week, while the old basic State Pension will be £176.45 per week.

Key takeaways:

If you reach State Pension age on or after 6 April 2016, you fall under the new State Pension rules.
You need at least ten qualifying years of NI contributions to receive any State Pension.
You typically need 35 qualifying years to receive the full new State Pension.

Recent increases and the triple lock

The triple lock has been a cornerstone of the government’s approach to State Pension increases. It ensures that each year, the new State Pension rises by the highest of three measures:

Average earnings growth
Inflation (usually measured by the Consumer Prices Index, or CPI)
A flat 2.5%

Because of this policy, the new State Pension has risen significantly in some years, especially when inflation or wage growth has been higher. According to the UK Parliament’s data in recent years, pensioners often rely on the State Pension for more than half of their income. This underscores why each annual increase remains so important for retirees, especially during times of rising living costs.

State Pension age changes

The government has gradually increased the State Pension age over the past decade. This process affects both men and women. It is already 66 for most individuals, and it is set to become 67 between 2026 and 2028. The government has also explored raising the State Pension age to 68 earlier than planned, but those proposals usually require further parliamentary debate and public consultation.

For 2025, the State Pension age remains 66 for most people, though those who were born in specific years may face a shift to 67 if their birthday falls within the transition period. It’s wise to check the government website or use the official “Check your State Pension age” tool to see your personal pension age.

National Insurance contribution requirements

Your NI record is the foundation of your State Pension entitlement. Each tax year in which you pay or are credited with sufficient National Insurance contributions counts as one “qualifying year.” You need at least ten qualifying years to receive any portion of the State Pension, and around 35 qualifying years to receive the full new State Pension.

Ways to build your NI record:

Pay NI contributions through employment: If you are employed and earn above a certain threshold, you automatically pay NI contributions.
Pay NI contributions if self-employed: If you are self-employed, you pay Class 2 and/or Class 4 contributions depending on your profits.
NI credits: If you receive certain state benefits (for example, Child Benefit for a child under 12), you may receive NI credits. These credits can fill in gaps for years when you are not working.
Voluntary contributions (Class 3): If you have gaps in your record, you can pay voluntary contributions to top up certain years. You usually have up to six years to fill past gaps, but from time to time, the government extends these deadlines.

Special note for 2025/26

If you discover missing years in your NI record when you check in 2025, you may still be able to buy back some prior years – if the deadlines allow. Keep in mind that voluntary contributions might not always boost your State Pension if you already qualify for the full amount, so you should confirm before making payments.

Deferring the State Pension

You do not have to start claiming your State Pension as soon as you reach State Pension age. If you choose to defer, the amount you eventually receive will increase. The government calculates deferral increases daily, and you usually need to defer for a minimum period before seeing a rise in your weekly pension.

For the new State Pension, the deferral rate for each year you delay is roughly just under 5.8% extra per year (the precise rate can vary). This means that if you have other sources of income and do not need the State Pension right away, you might consider deferring. However, it can take several years of receiving a higher pension to offset the time you spent without payments. So you should review your personal circumstances and consider factors such as health, life expectancy, and current financial needs.

Possible impact on your personal finances

The changes in 2025/26 may influence your financial planning, especially if you are close to retiring or already in retirement. Here are some points to consider:

Inflation and cost of living: If inflation remains high, an increase in the State Pension could help you keep pace with rising prices. At the same time, costs for essentials such as energy bills or groceries could offset some of the benefit of a pension increase.
Other benefits and allowances: People who receive the State Pension may also qualify for other benefits, such as Pension Credit or Housing Benefit, depending on their income and circumstances. If the State Pension rises, it could affect how much help you get from these benefits.
Interaction with private pensions: If you have a defined benefit or defined contribution pension, you may want to look at how your total retirement income will stack up. The State Pension can serve as a safety net, but it might not be enough on its own for your financial goals.
Tax considerations: The State Pension counts towards your taxable income. If a rise in the State Pension pushes you into a higher tax bracket, you could end up paying more in income tax.

Stay aware of how the annual changes in State Pension rates could influence your tax situation. Many people in retirement find themselves with multiple sources of income – part-time work, private pensions, savings, or investments – so it can be helpful to forecast how an increase in the State Pension might affect your taxable income.

How to check and boost your State Pension

A few straightforward steps can help you understand your entitlements and increase your State Pension if you have gaps:

Check your State Pension forecast: The government’s website (gov.uk) offers a service where you can see your forecast based on your NI record. It will show you how many years you have, how many you need for the full amount, and any shortfalls.
Review your NI record: You can check your NI record online to see if there are any gaps. This information is crucial when deciding if voluntary contributions make sense for you.
Consider voluntary NI contributions: If you have empty or partially empty years in your record, think about paying voluntary Class 3 contributions to help you qualify for a higher State Pension. Ensure you seek guidance – sometimes from a professional adviser – before paying, because it might not always boost your pension.
Understand credits for carers: People who take time off work to raise children or look after someone with a disability may receive NI credits that count towards the State Pension. It’s important to confirm that you have received all the credits you are entitled to.
Stay up to date on government announcements: The government may extend deadlines or offer temporary concessions, such as the chance to buy back older missing years, which can help you fill longer-standing gaps.

The importance of staying informed

With each financial year, the State Pension rules can shift through legislative changes or new government initiatives. You might see proposals to adjust the triple lock, alter the State Pension age schedule, or change the contributions system. While not all proposals become law, it helps to stay aware of discussions in Parliament.

Reliable sources for up-to-date information include:

Gov.uk (official government site with detailed explanations, calculators, and eligibility checkers).
UK Parliament website (for legislative updates).
Advisory services such as Citizens Advice or Pension Wise (for free guidance on retirement options).

Statistics from the Office for National Statistics (ONS) often offer insights into trends such as pensioner incomes, average lifespans, and employment patterns among older workers. These data points can give you a sense of where retirement planning stands on a national level.

Final thoughts

The State Pension remains an important building block of retirement security. Although private pensions, savings, and investments can be significant, many retirees rely on the State Pension for a sizeable part of their income. The updates expected in 2025/26 will likely continue the pattern of annual increases, but you should monitor official sources for the precise figures.

Paying attention to your National Insurance record and considering whether voluntary contributions could help you top up your future pension are good steps if you suspect shortfalls in your NI history. If you plan to retire around 2025 or slightly later, you should look at your anticipated State Pension age to see if you might be affected by any forthcoming age changes.

It can also help to reflect on how the new State Pension interlocks with your other sources of income. If the State Pension pushes your total earnings in retirement above certain tax thresholds, you should plan for that possibility. Meanwhile, if you have a smaller income, you should see whether you qualify for benefits such as Pension Credit. These decisions can benefit from professional advice, and many accountants, financial advisers, and charity services can guide you based on your individual circumstances.

The steps you take to check your forecast and NI record can make a difference. Accessing government services online and reading official guidance can confirm that you are on track to get the maximum amount for which you qualify. If you have a gap in your record, paying voluntary contributions might mean the difference between missing out on a higher payment or receiving a boost that could last the rest of your life.

Staying aware of potential changes is worthwhile, especially if you intend to retire in the near future. Even though the State Pension is only one part of your income in retirement, it can provide a dependable foundation. If you keep up with announcements and take a proactive approach to your NI record, you’ll be in a better position to ensure your State Pension meets your expectations.

Have any questions about your State Pension? Get in touch – we’re here to help.

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When should I look at moving from a sole trader to a limited company for tax-efficient savings?

By Price Mann • September 24, 2025

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Managing risk in your investment portfolio

By Price Mann • September 17, 2025

Managing risk in your investment portfolio Tips for a balanced investment approach. Investment markets rise and fall, yet the goals that matter to you – retirement security, children’s education, a comfortable buffer against the unexpected – remain constant. Managing risk means giving each goal the best chance of success while avoiding avoidable shocks. You can do that by holding the right mix of assets for your timeframe, using tax wrappers efficiently, and controlling costs and emotions. The 2025/26 UK tax year brings unchanged ISA and pension allowances. This guide explains the key steps, such as diversifying sensibly, rebalancing with discipline, safeguarding cash, and monitoring allowances, so you can stay on track whatever the markets deliver. It is an information resource, not personal advice. Start with a clear plan Define goals and timeframes: Decide what each pot of money is for (for example: house deposit in three years, retirement in 20 years). Time horizon drives how much short-term volatility you can accept. Short-term goals usually need more cash and high-quality bonds; long-term goals can justify more equities. Set your risk level in advance: Ask yourself two questions. Risk capacity: How much loss could you absorb without derailing plans (linked to your time horizon, job security and other assets)? Risk tolerance: How do you feel about market swings? Use a more cautious mix if you are likely to sell in a downturn. Ring-fence cash needs: Keep 3-6 months’ essential spending in easy-access cash before you invest. This reduces the chance of selling investments at a low point to meet bills. Choose simple, diversified building blocks: Broad index funds and exchange-traded funds (ETFs) covering global equities and high-quality bonds provide instant diversification at low cost. Avoid concentration in a single share, sector or theme unless you are comfortable with higher risk. Diversification: Spread risk across assets, regions and issuers Diversification reduces the impact of any single holding. Practical ways to diversify include the following. Assets: Use both growth assets (equities) and defensive assets (investment-grade bonds, some cash). Regions: Combine UK and global holdings. Many UK investors hold too much domestically; global funds spread company and currency risk. Issuers: In bonds, mix UK gilts and investment-grade corporate bonds to diversify credit exposure. Currencies: Equity funds are commonly unhedged (currency moves add volatility but can offset local shocks). For bonds, many investors prefer sterling-hedged funds to lower currency risk. A diversified core helps the portfolio behave more predictably across different market conditions. You can add small “satellite” positions if you wish, but keep any higher-risk ideas to a modest percentage of the whole. Use tax wrappers to reduce avoidable tax and trading frictions Efficient use of ISAs and pensions is one of the most effective risk-management tools because it protects more of your return from tax. ISAs (individual savings accounts) Annual ISA allowance: £20,000 for 2025/26. You can split this across cash, stocks & shares and innovative finance ISAs. Lifetime ISAs (LISAs) are capped at £4,000 within the overall £20,000. Junior ISA (for children under 18): £9,000 for 2025/26 (unchanged). ISAs shield interest, dividends and capital gains from tax. Rebalancing inside an ISA does not create capital gains tax (CGT), which helps you maintain your chosen risk level at lower cost. Note: There has been public discussion about potential ISA reforms, but the current 2025/26 allowance is £20,000. If government policy changes later, we will let you know. Pensions (workplace pension, personal pension/SIPP) Annual allowance: £60,000 for 2025/26 (subject to tapering for higher incomes; see below). You may be able to carry forward unused annual allowance from the three previous years if eligible. Tapered annual allowance: If your adjusted income exceeds £260,000 and threshold income exceeds £200,000, the annual allowance tapers down (to a minimum of £10,000 for 2025/26). Money purchase annual allowance (MPAA): £10,000 for 2025/26 once you’ve flexibly accessed defined contribution benefits (for example, taking taxable drawdown income). Tax-free lump sum limits: The lifetime allowance has been replaced. From 6 April 2024, the lump sum allowance (LSA) caps total tax-free pension lump sums at £268,275 for most people, and the lump sum and death benefit allowance (LSDBA) is £1,073,100. Pensions are long-term wrappers designed for retirement. Contributions usually attract tax relief and investments grow free of UK income tax and capital gains tax while inside the pension. Personal savings: Interest allowances Personal savings allowance (PSA): Basic-rate taxpayers can earn up to £1,000 of bank/building society interest tax free; higher-rate taxpayers up to £500; additional-rate taxpayers do not receive a PSA. Starting rate for savings: Up to £5,000 of interest may be taxable at 0% if your other taxable non-savings income is below a set threshold. For 2025/26, that threshold is £17,570 (personal allowance of £12,570 plus the £5,000 starting rate band). Dividends and capital gains outside ISAs/pensions Dividend allowance: £500 for 2025/26 (unchanged from 2024/25). Dividend tax rates remain 8.75%, 33.75% and 39.35% for basic, higher and additional-rate bands, respectively. The annual capital gains tax (CGT) exempt amount , £3,000 for individuals (£1,500 for most trusts). CGT rates from 6 April 2025: For individuals, 18% within the basic-rate band and 24% above it, on gains from both residential property and other chargeable assets (carried interest has its rate). HMRC examples confirm the £37,700 basic-rate band figure used in CGT calculations for 2025/26. CGT reporting reminder: UK residents disposing of UK residential property with CGT to pay must report and pay within 60 days of completion. Other gains are reported via self assessment (online filing deadline is 31 January following the tax year; if you want HMRC to collect through your PAYE code, file online by 30 December; payments on account remain due 31 January and 31 July). Why this matters for risk: Using ISAs and pensions lowers the drag from tax, allowing you to rebalance and compound returns more effectively. Outside wrappers, plan disposals to use the £3,000 CGT allowance and each holder’s tax bands and consider transfer to a spouse/civil partner (no CGT on gifts between spouses) before selling where suitable. Bonds and cash: Interest-rate and inflation considerations Interest rates: The Bank of England reduced the Bank Rate to 4% at its August 2025 meeting. Bond prices can move meaningfully when rates are high or changing, especially for longer-dated bonds. Consider the duration of bond funds and whether a mix of short- and intermediate-duration exposure suits your time horizon. Inflation: Headline Consumer Price Index (CPI) inflation was 3.6% in the 12 months to June 2025, while the CPI including owner occupiers’ housing costs (CPIH) rose by 4.1%. Inflation affects the real value of cash and bond coupons, and can influence central bank policy, affecting bond prices. Review whether your mix of cash, index-linked gilts and conventional bonds remains appropriate as inflation and interest-rate expectations evolve. Cash strategy: For short-term needs, spread deposits to respect Financial Services Compensation Scheme (FSCS) limits. For longer-term goals, excessive cash can increase the risk of falling behind inflation. Control costs and product risk Keep fees low: Ongoing charges figures (OCFs), platform fees and trading costs compound over time. Favour straightforward funds and avoid unnecessary expenses. Understand the product: Structured products, highly concentrated thematic funds or complex alternatives can behave unpredictably. If you use them, size them modestly within a diversified core. Use disciplined trading rules: Avoid frequent tinkering. Set rebalancing points (see below) and resist acting on short-term news. Rebalancing: Why, when and how Markets move at different speeds. Without rebalancing, a portfolio can “drift” to a higher or lower risk level than you intended. Follow this simple rebalancing framework. Invest in something that will rebalance automatically (i.e. certain ETFs) Frequency: Review at least annually. Thresholds: Rebalance when an asset class is 5 percentage points away from target (absolute) or 20% away (relative). Tax-aware execution: I prefer to rebalance inside ISAs and pensions. Outside wrappers, use new cash or dividends where possible; then consider selling gains up to the £3,000 CGT allowance and factoring in dividend and savings allowances. Implementation tip: If markets are volatile, use staged trades (for example, three equal tranches a few days apart) rather than one large order. Safeguard cash and investments with the right protections FSCS protection (cash deposits): Up to £85,000 per person, per authorised bank/building society group is protected. Temporary high balances from specific life events can be covered up to £1m for six months. The Prudential Regulation Authority has consulted on raising the standard deposit limit to £110,000 and the temporary high balance limit to £1.4m from 1 December 2025 (proposal stage at the time of writing). FSCS protection (investments): If a regulated investment firm fails and your assets are missing or there is a valid claim for bad advice/arranging, compensation may be available up to £85,000 per person, per firm. This does not protect you against normal market falls. Operational risk checks: Use Financial Conduct Authority authorised providers, check how your assets are held (client money and custody), enable multi-factor authentication, and keep beneficiary and contact details up to date. Currency risk: When to hedge For equities, many long-term investors accept currency fluctuations as part of the growth engine, since sterling often weakens when global equities are stressed, partly offsetting losses. For bonds, many prefer sterling-hedged funds to keep defensive holdings aligned with sterling cashflow needs. A blended approach works: unhedged global equities plus mostly hedged bonds. Behavioural risks: Keep decisions steady Common pitfalls include chasing recent winners, selling after falls or holding too much cash after a downturn. Tactics to keep you on track include: automate contributions (regular monthly investing), which spreads entry points write down rules (what you will do if markets fall 10%, 20%, 30%) separate spending cash from investments so you do not sell at weak prices to fund short-term needs use portfolio “buckets” in retirement. Retirement planning: Sequence-of-returns risk and withdrawals If you are drawing an income from investments consider the following. Hold a cash buffer (for example, 12–24 months of planned withdrawals) to avoid forced sales during sharp market falls. Be flexible with withdrawals: Pausing inflation-indexing or trimming withdrawals after a poor market year can help portfolios last longer. Use tax bands efficiently: Consider the order of withdrawals (pension, ISA, general investment account) to make use of personal allowance, PSA, dividend allowance and the CGT annual exempt amount. Take care around the MPAA if you are still contributing to pensions after accessing them. Putting it together: A repeatable checklist Confirm goals and time horizons. Check emergency cash (3-6 months). Map your target asset allocation. Use wrappers first: Fill ISAs and workplace/personal pensions as appropriate. Keep costs low: Prefer broad index funds/ETFs. Set rebalancing rules: Annual review + thresholds. Document tax items: Monitor dividend/CGT use; note 60-day property CGT rule; plan for 31 January/31 July self assessment dates if relevant. Review protection limits: Spread larger cash balances across institutions in line with FSCS; note proposed changes for late 2025. Schedule an annual review to update assumptions for interest rates, inflation and any rule changes. Get in touch if: you are unsure how to set or maintain an asset allocation you plan to draw income and want to coordinate wrappers and tax bands you expect large one-off gains or dividends and want to plan disposals or contributions you have concentrated positions (employer shares, single funds) and want to reduce single-asset risk tax-efficiently you are considering more complex investments. Wrapping up Risk management is not a one-off task but an ongoing discipline. By defining clear objectives, spreading investments across regions and asset classes, using ISAs and pensions to shelter returns, and reviewing allocations at least annually, you create a framework that limits surprises and keeps decisions rational. Document key dates – self assessment payments on 31 January and 31 July, the 60-day CGT rule for property, and the annual ISA reset on 6 April – so tax never forces a sale at the wrong time. Check deposit limits and platform safeguards for peace of mind, and keep a written record of your rebalancing rules to prevent knee-jerk trades. If life events or regulations change, revisit your plan promptly. A measured, systematic approach lets your portfolio work harder while you stay focused on the goals that matter most. Important information This guide is information only and does not account for your personal circumstances. Past performance is not a guide to future returns. The value of investments and income from them can fall as well as rise, and you may get back less than you invest. Tax rules can change and benefits depend on individual circumstances. If you need personalised advice, please contact a regulated financial adviser. If you’d like advice on managing your portfolio, get in touch.

020 8204 2228

info@pricemann.co.uk