Budget 2025

Budget announcement about the PPF providing addition protection for pre 1997 PPF schemes, Calum Cooper, Head of Pension Policy Innovation, Hymans Robertson says:

“The PPF providing better pre 1997 inflation protection for those that lost it is a great thing for savers. Kudos to the government for taking this on. As ever, how this is delivered in practice will take care. One positive unintended consequence is that it means the PPF’s coverage is now as near to 100% as it has ever been. As a result, Companies and Trustees may want to reflect on their appetite for creating and sharing value via running the DB schemes on, given that the downside risk is now reduced. On the other hand, thought and care will be needed to ensure that the superfund market can continue to thrive – it will make sense to think carefully about their capital thresholds and where that needs to be in light of this change. For example, done bluntly those that should benefit most from the PPF compensation change may miss out on full benefits by virtue of pushing the price of superfund out of reach – clearly an unintended consequence.”

 

Commenting on salary sacrifice changes and modelling in reaction to the Budget Speech today, Hannah English, Partner and Head of DC Corporate Consulting, Hymans Robertson, said:

“We’re concerned to see the Chancellor’s announcement today removing National Insurance Contribution relief on salary sacrifice pension contributions over £2,000. Preserving National Insurance savings on pension contributions is vital as it’s an incentive for people to save into pensions as well as providing a mechanism for controlling payroll costs. The decision will have hard-hitting implications for both employers and employees from 2029. According to our research, fewer than 10% of employers would be able to absorb the cost of a reduction in NI savings on pensions contributions. So this cost increase is likely to shape businesses’ workplace provision in the future. The cost increase for employers could also see many of them review future pay rises, reduce pensions contribution offerings or adjust future recruitment in order to offset increases in costs. Our research suggests 43% of employers may review their reward strategies as a result of the announcement.

“The changes will also be complex to introduce, and it will be interesting to see how the government plans to monitor them in practice. It’s no surprise that the change will not commence until 2029 - careful consideration will need to be made around the logistics of implementing the cap and providing employers time to set this up.

“Employers recently saw NIC rates rise from 13.8% to 15% - for those who don’t use salary sacrifice this cost them approximately £1,100 extra per year for an employee earning £50,000 and paying 5% into pensions. As a result some employers introduced salary sacrifice to offset this, saving around £375 in NIC annually for the same situation. For employees sacrificing more, the associated employer savings are higher. Under these new measures the maximum saving for an employer will be £300.  

“This move also contradicts the government’s desire to increase pension adequacy. Restricting tax relief may appear to deliver short-term savings, but it erodes the long-term resilience of workplace pensions. Adequate retirement provision depends on sustained contributions, and policy changes like this make that harder to achieve.

“We’ve modelled what a £2,000 cap on salary-sacrificed employee pension contributions could mean for three typical employers and their people:

• Medium-sized white-collar firms (e.g. a 1,000-person professional services company with strong pension provision and average salaries of £67k): employer costs could rise by around £830k, a 1% increase in total employment costs.

• Large blue-collar firms (e.g. a 10,000-person manufacturer or energy company with good pensions and average salaries of £43k): employer costs could rise by £1.4m, a 0.3% increase.

• XL retailers/hospitality firms (e.g. a 90,000-person supermarket chain with modest pensions and median salaries of £33k): employer costs could rise by £1.5m, a 0.04% increase.

“For context, when NIC rates rose to 15% and thresholds were lowered in April 2025, these same employers saw NI costs increase by approximately £1.2m, £9.9m and £79m respectively. This means the impact of a £2k cap would be similar for medium-sized firms, smaller for large blue-collar employers, and negligible for the largest retailers but material for those who invest heavily in pensions, compared to the increases they have already been hit by. 

“From an employee perspective, those contributing less than £2k annually would see no change in take-home pay. However, employees sacrificing more than £2k would experience reductions, with the impact increasing as contributions rise. For example, in a large retailer, an employee contributing £6,000 could see take-home pay fall by around £80, while someone contributing £10,000 could lose £160.

“This is not simply about pension saving; it is about good business practice. Employers whose default contributions are higher, will carry the greatest burden. They now face a tough choice: maintain strong pension design and absorb higher costs or reduce their pension contribution and effectively scale back support for long-term retirement adequacy. Meanwhile, businesses that have never invested meaningfully in pensions will feel little impact, leaving them with little incentive offer a pension to their employees.

“If the government’s ambition is to drive productivity and long-term growth, constant tinkering with pension rules creates uncertainty and undermines trust. What savers and employers need is stability and simplicity that will lead to adequacy. This move does not achieve that.”

 

Commenting on the Budget, Chris Arcari, Head of Capital Markets, Hymans Robertson, said:

“Yields had been rising from their early-autumn lows in the run up to the budget as the Chancellor walked back a proposed increase in income tax rates (while reducing NI at same time). This was because revenue-raising measures were viewed as less certain and less disinflationary: income tax rises would have produced more upfront fiscal drag, and the revenue would have enabled the Chancellor to bring down inflation directly by reducing energy bills by more. The piecemeal plans to raise revenues are more backloaded and less certain. This has increased the ‘term’ or risk premium on UK government debt and placed downwards pressure on sterling. Bigger changes to narrower taxes could also harm the economy through their distortive impacts on consumer and business behaviour.

“On the day, however, a chaotic early leak of the budget confirmed that the Chancellor intends to more than double her headroom against self-imposed fiscal rules, to £21.7bn. Alongside the direct cut in green levies on energy bills, this should put downwards pressure on near-term interest rates and inflation, via a reduction in term premia and inflation expectations. Indeed, the OBR judges the reduction in green levies will reduce inflation next year by 0.4%. Additionally, the DMO announced that its upwards revision to annual issuance was lower than expected - £4.7bn versus £9bn anticipated. At the margin, this should also place some downwards pressure on yields.  

“While debt-crisis concerns seem a little farfetched, UK yields are vulnerable to sentiment, and the market needs to believe that fiscal-consolidation plans for balancing revenue and day-to-day spending are credible. But with the major revenue-raising levers off the table, it makes it harder for the Chancellor to deliver. So far, yields have fallen, with larger falls at shorter terms, and sterling had trended up modestly versus the dollar. Our interpretation of the market’s initial reaction: the budget has cleared the lower bar set by markets in the run up to its official release”

 

Commenting on the announcement in the Budget abound enabling DB pension scheme surplus payments to members, Sachin Patel, Head of Corporate DB, Hymans Robertson comments:

“If it is indeed the case that the tax treatment has changed to allow direct payments of DB surpluses to pensioner members without additional tax penalty, this would be a welcome and positive step. It would provide trustees and employers with greater flexibility to deliver real value to members, without incurring extra tax costs or adding to future liabilities. Such a development would support more efficient decision-making and ensure members can benefit from targeted support when it’s needed most.”

 

 

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