The Chancellor delivered the 2025 Budget on 26 November. Before the Budget, there had been rumours that the Government would reduce tax relief on pension contributions, reduce the amount of tax-free cash available on retirement or introduce employer national insurance on all pension contributions. None of these changes were announced.
The Government did announce a limit on the National Insurance savings for employers and members if pension contributions are paid through a salary sacrifice arrangement. The limit will come into force from 6 April 2029.
Contributions to the LGPS are not paid through a salary sacrifice arrangement and so most members will not be affected by this change.
Some employers allow LGPS members to pay additional voluntary contributions (AVCs) through a salary sacrifice arrangement. The change will only affect members who pay more than £2,000 a year into an AVC through a salary sacrifice arrangement after 5 April 2029.
If you are paying AVCs through a salary sacrifice arrangement, you would have agreed to a reduction in your pay, with your employer paying that amount into your AVC in exchange. If you are unsure, check with your employer.
Remember, most LGPS members will not be affected by this change:
- Your contributions to the LGPS are not affected
- Any AVCs you pay directly from your pay are not affected
- The first £2,000 of AVCs paid through a salary sacrifice arrangement each year are not affected
- From 5 April 2029, you and your employer will pay National Insurance contributions on AVCs over £2,000 paid each year through a salary sacrifice arrangement.
AVCs are a great way to save extra for your retirement. You get tax relief on any AVCs you pay, and that will not change. See Paying more for more information about the different ways you can increase your income in retirement.