Retirement finance issues to watch out for in 2025

Five things to keep an eye on this year

Written in line with our editorial policy.

Are you on top of your finances? With 2025 already shaping up to be eventful for retirees who are serious about money matters, here’s a quick roundup of some issues that may affect you.

Now that we are well and truly into 2025, we thought it would be a good idea to take a look at some of the personal finance matters of interest to retirees (and soon-to-be-retirees) this year.

Whether you are on a low, moderate or high income, there will be something in here that may need a little attention. Naturally there will be others to consider depending on your circumstances, but here are five to include on any financial to-do list.

State Pension increase – will it push you into income tax?

Let’s start with some good news for everyone of State Pension age. The State Pension will increase by 4.1% in April, thanks to the triple lock. But what does that mean in cash terms? 

Everyone welcomes a few extra pounds in their pocket, but the latest State Pension increase comes with a less welcome side effect for some. The increase will push some people above the income tax threshold, if they receive other income such as a private pension.

The income tax threshold has been frozen at £12,570 for some time and looks set to be stuck there for the foreseeable future. This means that some people previously just under the threshold will be liable for income tax when the State Pension increase comes into effect in April.

In the years ahead, even people whose sole source of income is the State Pension could find themselves with an income tax bill. 

Charlene Bell of AJ Bell writes: “The State Pension will be at a level perilously close to the tax-free personal allowance and should overtake it in a couple of years if things continue, thanks to frozen tax thresholds. At that point something must surely give. But slowing the increase in State Pension growth or unfreezing the personal allowance both seem unlikely.”

We should however stress that you would only pay 20% tax on any income immediately above the threshold. For example, if your combined income from the State Pension and other sources were £14,000, you would pay tax only on £1,250. At the 20% basic tax rate that’s £250 per year.

Benefit increases – will they affect you?

There will be a whole range of state benefit increases from this April, coinciding with the increase to the State Pension. Two benefits that will be of interest to many people in later life are:

Attendance allowance – higher rate increasing from £108.55 per week to £110.40, lower rate increasing from £72.65 to £73.90.

Pension Credit – tops-up a single person’s weekly income to £218.15 currently, rising to £227.10 in April (from £332.95 to £346.60 for couples).

Pension Credit – are you eligible?

People of pension age can expect to hear a lot more about Pension Credit this year. The government is ramping up its campaign to get more of the eligible people who have not applied to do so. 

The Department for Work and Pensions (DWP) is writing to 11 million pensioners in the next few weeks. They will explain how Pension Credit works and how to claim. It is certainly worth claiming if you are eligible as people who receive Pension Credit may also get other benefits including the Winter Fuel Payment and council tax discounts. 

See this handy guide for more information about eligibility for Pension Credit, how it works and where to apply: Pension Credit – do you qualify and how to apply 

Interest rates – what will 2025 bring?

There’s no doubt that 2024 was an interesting one when it came to inflation and interest rates. It looks as though interest rates might fall this year, which would naturally have a negative impact on your finances if you have money saved somewhere with variable interest rates. 

You may wish to look at current deals for fixed rate savings accounts to safeguard against future rate cuts. However, predictions of interest rate falls aren’t necessarily an accurate guide to what will happen.

Another point of interest to anyone deciding what to do with a pension pot is what’s happening to annuity rates. These determine how much guaranteed income you would get if you used your pension pot to buy an annuity. Rates have been especially high over the past couple of years, compared to the period before that. Anyone considering an annuity might want to look into the latest rates and decide whether to act now or see where rates are headed.

Inheritance tax on pensions – will your estate be liable?

Chancellor Rachel Reeves announced in last October’s Budget that pension savings will be considered part of someone’s estate and liable to inheritance tax (IHT) from April 2027. At present, pensions are not included when the value of someone’s estate is calculated for IHT purposes.

The IHT thresholds would stay the same, starting at £325,000 and increasing to £500,000 where a residence is left to your children or grandchildren. Estates left entirely to spouses, civil partners or charities are not liable for IHT.

A technical consultation has just completed in which the pensions industry had an opportunity to express views on the process required to implement the changes. The government will soon report on next steps for implementing the new rules.

If you think this will affect you, you may choose to wait until the report on the consultation is published. Depending on what the government says, you may then wish to seek financial advice on inheritance tax planning with the new rules in mind.

Sources:

State Pension, Attendance Allowance and Pension Credit levels: Benefit and pension rates 2025 to 2026. gov.uk. Accessed 3 February 2025.

Charlene Bell, AJ Bell: Nine personal finance changes coming in 2025. AJ Bell. Accessed 3 February 2025.

DWP writing to pensioners re pension credit: DWP alert as 700,000 pensioners still missing out on key £4,200 boost. The Express. Accessed 3 February 2025.

About Richard Groom. A writer with 20+ years’ experience across several sectors including financial services, Richard has a passion for writing clear and simple content on even the most complex of subjects. In his spare time, Richard loves exploring the hills and mountains of the UK on long walks with his faithful cocker spaniel. Follow Richard on LinkedIn