The following is a transcript of a bonus podcast episode of The Pension Confident Podcast. Listen to the episode or scroll on to read the conversation.
Takeaways from this episode
- Understanding the new tax year - the new tax year started on 6 April 2025, which resets your annual tax allowances. This is an opportunity to set financial goals, such as utilising savings accounts like ISAs.
- Incomes and income tax - the National Living Wage for those aged 21 and over will rise from £11.44 to £12.21 per hour.
- Frozen tax thresholds - the freezing of income tax and personal tax-free allowances means that more people may be pushed into higher tax brackets as their salaries increase.
- State Pension adjustments - the State Pension will rise by 4.1%, benefiting from the triple lock. But some pensioners may feel worse off due to the withdrawal of the Winter Fuel Payment.
- Changes to statutory sick pay - Statutory Sick Pay will increase from £116.75 to £118.75 per week, though this remains a minimal change.
- Increased parental pay and childcare benefits - Statutory Parental Pay will see a nominal increase, while free childcare hours will expand significantly from September 2025, although potential costs remain a concern for parents.
PHILIPPA: Hi there. Welcome to a bonus episode all about the new tax year and what it could mean for your finances. Now, last November, we had Chancellor Rachel Reeve’s first budget. We’ve just had her first Spring Statement. So what’s changing? Well, plenty! From the minimum wage to tax bands, sick pay, and the State Pension - a bunch of announcements came into effect on 6 April. So now’s the perfect moment to get your head around them.
I’m Philippa Lamb, and if you’re not already subscribed to the podcast, why not click to sign up right now? Faith Archer has just walked into the studio. If you’re a regular listener, you already know she’s an old friend of the podcast. She’s a Financial Journalist and Founder of the personal finance platform, Much More With Less - which helps people make the most of their money. Welcome back to the podcast, Faith.
FAITH: Great to be here.
PHILIPPA: It’s nice to see you again. Here’s the usual quick disclaimer before we start, please remember, anything discussed on the podcast shouldn’t be regarded as financial advice or legal advice. And importantly, when investing, your capital is at risk.
The start of a new tax year
PHILIPPA: So, Faith, should we start with the basics? As I said, the new tax year, it started on Sunday 6 April. What exactly is the tax year?
FAITH: Well, it’s the year from 6 April one year to the 5 April the next, and it’s the period over which income tax and other taxes are calculated. So rather than running for the calendar year, from the beginning of January to the end of December.
PHILIPPA: It’s quite a useful reset point in the year, isn’t it, for everyone?
FAITH: Yeah, I think so. You can almost have your ‘tax year resolutions’ and think about the different things you’re going to do now that all your tax allowances have restarted.
PHILIPPA: I’m guessing you do this every year. What sort of things are on your list?
FAITH: Well, from an income perspective, you’re allowed to earn a certain amount of money every year before you start paying income tax. For most people, that’s £12,570 a year. But there’s also some little extra allowances. The £1,000 a year property allowance, the £1,000 a year trading allowance. If you make a bit of money, say selling stuff on Vinted or Depop -
PHILIPPA: OK.
FAITH: - those allowances restart. You can earn extra cash without having to pay income tax. Also, if you’ve got any spare cash that you can sort away, you have allowances, £20,000 is the overall Individual Savings Account allowance -
PHILIPPA: ISA?
FAITH: - the ISA, yes. Then once you put money inside an ISA, it’s protected from the taxman. The taxman can’t touch it for tax, and they’re also not interested if you take any money out of it. There are many flavours of ISAs nowadays. There’s also the Lifetime ISA. That’s a £4,000 allowance with the bonus that the government will add an extra £1,000. It’s meant to be an incentive for younger people to save for [their] first property or for retirement. There’s Junior ISAs for the under 18s, so you can put £9,000 each tax year in those for your kids. And pensions, your pension allowance resets, so you can put a larger sum into your pension.
PHILIPPA: Yeah, and as you say, I’ve been talking about the ISA allowances. They always sound like such a lot of money, £20,000 here, £9,000 there. But you can put in whatever you can afford, but it’s well worth putting in what you can, right?
FAITH: Absolutely. I think the tax year can be a really good trigger just to rethink, are there ways that you can top-up the allowances that are slightly less painful.
PHILIPPA: Yeah.
FAITH: Setting up that Direct Debit for an affordable amount, so it just goes out without you having to lift a finger. If you’re one of the lucky people that’s had a pay rise, for example, then now might be a good time to think, “have you got some spare cash that perhaps you could divert into savings or pension? Can you up a Direct Debit? Could you up, if you’re lucky enough to have an employer who might even match pension contributions, could you up those contributions?” It’s going out straight after payday before you’ve noticed it, before you’ve got used to living on a higher income.
PHILIPPA: What you’re essentially saying is, it’s a spring clean for your finances, isn’t it?
FAITH: Yeah.
PHILIPPA: The beginning of the tax year. Every year, just take a look at what’s going on, make some changes, see where you’re at?
FAITH: Yeah.
Increased pay for employees and costs for employers
PHILIPPA: Should we take a look at what’s actually changed from the Chancellor’s point of view? Because as I said, we had the Budget last Autumn. Some of the things she announced then are only coming into effect now. Then we’ve had the Spring Statement as well. I mentioned the National Living Wage. What’s changing there?
FAITH: Well, I think this is positive. It’s going up. For those aged 21 and over, it’s going to go up from £11.44 an hour to £12.21 an hour. That’s if you’re working 35 hours a week, that’s a reasonably decent increase. Where it’s really going to hit, perhaps, is more on the employer side of it -
PHILIPPA: Yeah.
FAITH: - than the employee. Because for employers, they’re not just having to find the money for increases in the National Living Wage, if that affects some of their staff. But also we’re finally seeing the changes to employee National Insurance contributions (NICs) kicking in. The ones that were announced in the Autumn Statement. That’s quite a tough pill because employers are seeing both the rate at which National Insurance contributions by employers are paid, that’s going up - 13.8% to 15%. And also the point at which they have to start paying it is going down. All of a sudden, they have to start paying employer NICs at £5,000 rather than £9,100. I think that triple whammy: more employer NICs, starting at a lower point and higher salaries if you’re sticking with the National Living Wage. That’s quite an expensive bill on the payroll.
PHILIPPA: Employers will see their payroll cost go up. It depends what business they’re in, [by] how much. There’s going to be a knock-on for jobs, I’m guessing, and maybe a knock-on for how likely you are to get a pay rise this year.
FAITH: Yeah. Fundamentally, if costs have gone up, that money is going to come from somewhere. So either it’s being passed on in higher costs for goods and services, or fewer pay rises, or are they going to be more reluctant to take on additional staff if the cost is going to be higher? If the business is struggling, are they actually going to have to let staff go? We have yet to see how that’s going to roll out, what impact that is going to have on people’s wages and employment prospects.
PHILIPPA: There’s been a lot of speculation in the press, isn’t there?
FAITH: Yeah.
Frozen income tax and personal tax-free allowance thresholds
Now, tax again. Explain this to me because I think it’s often very confusing. Income tax and personal tax-free allowances, they’re frozen again this year. What does that mean?
FAITH: I mentioned that you could earn a certain amount of money before you start paying income tax. At the moment, that’s £12,570. Now, what used to happen was each year that allowance went up with inflation. By freezing them, what it means is if the allowance is the same but your salary increases, you’ve got more income being taxed.
PHILIPPA: At the higher level?
FAITH: Well, just being taxed at all! It means more people start paying tax and more people get pushed up into higher tax brackets. It just means a higher tax take. The fact that it has been frozen, I think it was maybe even April 2022, it’s forecast to be frozen until at least April 2028. This is one way of bringing in a significantly higher tax take for the government rather than just, say, slapping up the rate of income tax.
PHILIPPA: It’s worth being aware of, because it sounds like one of those things you think, “well, if it’s frozen, so what? I don’t need to think about it”. But actually, it’s significant, isn’t it? There’s a term for it, isn’t there? ‘Fiscal drag’.
FAITH: Yeah. It’s a really big intake. I’ve seen figures from the Office for Budget Responsibility (OBR) suggesting that the freeze since 2022 means there’ll be 9% more taxpayers in all, but 47% more higher rate taxpayers, and again, 47% more additional rate taxpayers. Because of people getting pushed up into these higher rates of income tax.
PHILIPPA: It’s really, really significant.
FAITH: Yeah.
The State Pension and Winter Fuel Payment
PHILIPPA: [The] State Pension, that’s going up.
FAITH: It is! Income tax thresholds may be frozen, but the State Pension, it benefits from the ‘triple lock‘, the full new State Pension. The triple lock, it means that the State Pension increases each year by the highest of either: inflation, earnings growth, or 2.5%.
PHILIPPA: This year?
FAITH: It’s going up 4.1% in line with the Consumer Price Index (CPI) - inflation.
PHILIPPA: OK, which sounds like good news.
FAITH: Well, it is good news, and I think there are a lot of pensioners that’ll be glad of the increase in their State Pension. Especially because they saw the Winter Fuel Payment withdrawn by the government. That’s something that used to be a universal benefit that pensioners got either £200 or £300 to help pay their heating bills. The change that Labour brought in was that you’d only get the Winter Fuel Payment if you were on certain means-tested benefits, such as Pension Credit.
PHILIPPA: Yeah, this was a change that happened very rapidly, didn’t it? As soon as the new government came into power -
FAITH: Very quickly.
PHILIPPA: - pretty much this happened. I guess for those people, even though the State Pension is going up, it’s going to be offset by the fact that they won’t be able to claim, they won’t get the Winter Fuel Allowance.
FAITH: I think the real kicker, I’ve heard this month referred to as ‘awful April’ because for all of us, not just if you’re a pensioner, but virtually every utility bill you can think of is going up. Now, I’ve seen forecasts that on average, people expect their bills to go up by [around] £400 a year.
PHILIPPA: That’s a lot.
FAITH: And the State Pension is going up by £471 (a year).
PHILIPPA: So when it comes down to it, most people aren’t going to be that much better off?
FAITH: No. If you used to get the Winter Fuel Payment and you no longer do -
PHILIPPA: You’re worse off.
FAITH: You’re worse off. If you look at food prices, there’s been a lot of food inflation. Things aren’t looking rosy.
PHILIPPA: No. I mean, being a bit less doomy, at least, inflation does now seem to be coming more under control, certainly more than it was last year.
FAITH: Yes, not as sky high, no.
PHILIPPA: Before we leave pensions, there’s this issue now, isn’t there? With the State Pension getting close to the level of the personal allowance you were talking about a minute ago. This is the point at which we have to start paying tax. What could that mean for pensioners then? If their pension takes them to the point where they need to start paying tax?
FAITH: Well, it’s the government effectively giving with one hand and taking away with the other. I think it just means that more pensioners will have to pay income tax if they have the smallest amount of other income. Perhaps from a private pension, savings, investments, whatever it is, workplace pensions.
PHILIPPA: They might have been just below the limit where they had to start paying tax, but now they might tip over.
FAITH: Yeah, it’s so clear. I think the full new State Pension from 6 April, I think is like £11,973 a year versus the £12,570 personal allowance. What’s that? Like a £600 difference.
PHILIPPA: Really, really close.
FAITH: Yeah, you don’t need to be bringing in much extra income, and suddenly you’re a taxpayer.
Changes to Statutory Sick Pay, alongside overhaul of benefits systems
PHILIPPA: Sick pay. Statutory Sick Pay (or SSP), that’s changing too, isn’t it?
FAITH: It is. It’s increasing up from £116.75 to £118.75 per week.
PHILIPPA: Not a huge change.
FAITH: Yeah, it’s not a massive change. It’s a little bit up. I mean, that’s the minimum. You’ll find some employers are more generous, but I don’t think many of us would actually like to be trying to fund all of our living costs on that amount per week.
PHILIPPA: No, absolutely. Now, the other issue that cropped up in the run up to the Spring Statement was [the] changes to the benefits system. We now know what they’re going to be. It’s complicated. It affects quite a range of benefits. Do you want to just remind us which ones it is - so that people can check for their own situation?
FAITH: I think the government is very keen to get more people into work and bring down the size of the benefits bill. The main levers it’s using to pull are on Universal Credit, and the Personal Independence Payments (PIP), that are made to people who have disabilities, illnesses that make it more difficult for them to work. They’re effectively making it, I think, more difficult to get Personal Independence Payments to try and make people incentivised to go out, find jobs in some way, and increase their income that way.
Increased Statutory Parental Pay and free nursery hours
PHILIPPA: Family-friendly changes. Now, we’ve seen rises, haven’t we? To statutory maternity, paternity, adoption, and Shared Parental Pay. They’re all going up?
FAITH: They are. They’ll go up nominally from £184.03 to £187.18. But in practice, the amount is either 90% of average weekly earnings or the statutory rate (whichever is lower). The earnings threshold is also going up a tad, just ticking up £123 to £125 a week. Maternity Allowance, though, [the] threshold stays at £30 a week.
PHILIPPA: OK. I mean, something to think about if you’re planning for a new baby, I guess, just to factor those numbers in?
FAITH: Make the budget beforehand so that if you do need to make cuts, you do them as soon as possible, rather than after -
PHILIPPA: Yeah.
FIATH: - you spend the money and suddenly thinking, “oh my goodness, I can’t afford that!”.
PHILIPPA: First step, understand what your employers’ policies are.
FAITH: Yeah, because some employers are way more generous than the statutory minimums.
PHILIPPA: Yes, because if you only get the statutory minimum, that might be way, way less than you would tend to earn normally (or not). But so get on the company website, ask your line manager, whatever it is - find out. Because there’s no standard policy here. It goes company by company, employer by employer.
FAITH: Company by company. It’ll be limited to how much time you take for your maternity leave. There may be reasons why you need to return to work at certain points rather than go on to lower levels of maternity/paternity pay.
PHILIPPA: Thinking about older kids, then childcare, this is a huge cost for millions of parents. I mean, it’s something that’s talked about by everyone with children. What’s happening with free childcare hours? Because they’re going up, aren’t they?
FAITH: They are. It’s not something that’s changing straight away. It’s more from September 2025. The situation at the moment is that eligible working parents can get 15 hours free childcare for children aged nine months to three years [old]. But that then doubles to 30 hours for three and four year olds. The big change from September 2025 is that 30 hours a week should be available for all the kids from nine months up to school age. There’s widening the access to 30 hours a week [of] free childcare.
PHILIPPA: I’m slightly wondering how helpful this will be for everyone. Because there’s already talk of nursery fees going up and swallowing that benefit from the point of view of parents and also the lack of provision nationally. It’s patchy, isn’t it?
FAITH: It’s patchy. It depends what childcare provision is available in your area. Part of the reason it’s patchy is because historically, the amount the government reimburses nurseries for these free hours isn’t actually enough. It doesn’t cover the genuine cost of caring for the children. We’ve seen, I mean, some nurseries have closed. Other nurseries, they get around it by charging top-up fees.
PHILIPPA: Yeah.
FAITH: So your free hours do come with a bill attached, where that’s justified as being for, say, nappies or meals, sunscreen, trips. So there could be some cost. I think one of the other restrictions is that it’s not necessarily 30 hours week in, week out. It’s during term-time rather than all year round.
PHILIPPA: Yeah, that’s a really key thing to understand if you’re working full-time. Time, isn’t it? This doesn’t cover you all year.
FAITH: Yeah. While the free hours of childcare, if it brings down your childcare bill, that’s amazing.
PHILIPPA: Great.
FAITH: Just remember, it’s more like a reduction than potentially completely free.
PHILIPPA: It’ll depend on what nursery you’re using.
FAITH: Yes.
PHILIPPA: Faith, thank you so much. That was a really useful rundown. Sorry to have so many questions. There was a lot to talk about, wasn’t there?
FAITH: There was.
PHILIPPA: If you’re enjoying this series, please do give us a rating and a review. It really helps us reach more listeners like you. Now, if you’ve missed an episode, don’t worry. You can catch up anytime on your favourite podcast app, YouTube, or if you’re a PensionBee customer in the PensionBee app, of course.
Now, next month, we’ll be exploring how to stay on top of your finances if you’re thinking about making a career change. Maybe you’re thinking about reskilling into a whole new line of work. Maybe it’s self-employment or starting your own business that you’re thinking about. Whatever age and stage you’re at, we’ll have plenty of practical tips and inspiration to help you take that next step.
Just a final reminder, anything discussed on the podcast shouldn’t be regarded as financial advice or legal advice. When investing, your capital is at risk. Thanks for being with us.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
