Chancellor confirms state pension increase of 4.1% alongside plans to levy inheritance tax on private pensions

The full new state pension will be worth £11,976 next year after the Chancellor, Rachel Reeves, confirmed in today's Autumn Statement that the triple lock will be maintained.

This means that 12 million pensioners will get up to £470 more in 2025-26.

The Chancellor also announced big changes to the way pensions are taxed when you die that will leave more people facing an inheritance tax bill.

How much state pension will I get in 2025?

The Chancellor used the Budget speech to confirm a 4.1% rise in the state pension from next April, thanks to the triple lock guarantee.

This is the mechanism for calculating state pension increases whereby payments rise each year by one of three measures: the rate of inflation (as of the previous September), average earnings growth (as of the previous July) or 2.5%, whichever is highest.

The Office for National Statistics (ONS) had already confirmed the CPI inflation figure for September 2024 as 1.7%, meaning that under the triple-lock guarantee, the state pension will rise next year in line with wage growth, as average earnings growth in May-July 2024 was 4.1%.

The full level of the new state pension is currently £221.20 a week, or £11,502.40 a year. 

As of April 2025, it will be worth £230.30 a week, or £11,975.60 a year. 

Pensioners who qualified for the state pension before April 2016 and receive the basic state pension will see their weekly payments rise from £169.50 a week (£8,814 a year) to £176.45 (£9,175 a year, an increase of £361).

Will inheritance tax be due on my pensions?

The Chancellor announced that pensions will be brought within the scope of inheritance tax from April 2027. 

Pensions have been seen as a useful tool for estate planning because this money is not usually counted as part of your estate for inheritance tax purposes. 

If you die before 75, you can pass on money left in your pension pot to your beneficiaries free of tax. If you die after 75, this money will be taxed as income. 

But from April 2027, money in defined contribution pensions will be added to the rest of your estate, meaning that it could be subject to inheritance tax if the total value of your estate exceeds the tax-free allowance.

The change is predicted to affect around 8% of estates each year.

 It will not apply to defined benefit (final salary) pensions, as these cannot usually be passed on.

• Find out more: the big tax changes announced in the Budget

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Is pension tax relief changing?

There had been persistent rumours about the introduction of a flat rate of pension tax relief, but the plans were shelved by the Chancellor, mainly because of concerns of the impact it would have on public sector workers.

Tax relief is linked to the highest rate of income tax you pay, so 40% for higher-rate and 45% for additional-rate taxpayers. 

Under current rules, savers can pay up to £60,000 into their pensions each year and receive tax relief at their marginal tax rate.

Applying a flat rate of tax relief at 20% across all contributions could raise about £15bn a year, according to the Institute for Fiscal Studies (IFS).

There had also been speculation that the government would reduce the amount of tax-free cash you can take from your pension, but this remains unchanged at £268,275.