As the new tax year begins on April 6, 2025, significant changes are set to impact the financial landscape for millions of individuals across the UK. The Department for Work and Pensions (DWP) and HM Revenue and Customs (HMRC) have announced increases in various benefit rates, including the State Pension and Universal Credit, which are expected to provide much-needed financial relief to many households.
According to HMRC, around 120,000 people have topped up more than 260,000 years' worth of gaps in their national insurance (NI) records since the launch of a digital service in April 2024. This initiative allows individuals to make voluntary contributions back to April 6, 2006, and has seen an average online top-up payment of £1,893. The biggest weekly state pension increase recorded so far is £119.31. Notably, more than half (57%) of the years topped up have been from 2017 onwards.
However, a crucial deadline looms. Individuals have until April 5, 2025, to check their NI records and fill any gaps. After this date, voluntary NI contributions will only be allowed for the previous six tax years. For those who are struggling to connect via helplines, the DWP has provided an option to complete a callback request form online to discuss payment of voluntary NI contributions. A government spokesperson emphasized that this online tool is designed to ensure that no one misses out on the opportunity to boost their state pension.
In tandem with these changes, the full "new" state pension is set to increase to £11,973 as of April 6, 2025. This boost is expected to push an additional 650,000 individuals over the income tax threshold of £12,570 by the 2025/26 tax year, according to recent analysis. The increase, attributed to the "triple lock" mechanism, which adjusts pension payments based on inflation, wage growth, or a minimum of 2.5%, is estimated at 4.1%.
Sir Steve Webb, a former Liberal Democrat MP and pensions minister, has voiced concerns over the implications of the income tax threshold remaining static. He warned that the inflation of state pension amounts is pushing "millions of pensioners into the tax net for the first time since they retired." The Chancellor, Rachel Reeves, has continued the Conservative Government's decision to freeze income tax thresholds until at least 2027/28, which is expected to exacerbate the situation.
With the combined increases in the state pension over the past three years amounting to nearly a quarter, pensioners are now facing a scenario where they may be liable for income tax simply for receiving the full amount they've been promised. Jon Greer, head of retirement policy at Quilter, highlighted that the Office for Budget Responsibility (OBR) forecasts a 4.6% increase in April 2026, which would bring the full new state pension to £240.85 a week, just below the personal allowance threshold.
In light of these changes, a petition signed by over 200,000 individuals is calling for the government to raise the personal allowance limit to £20,000. This petition will be debated in Parliament on May 12, 2025, as many view the current system as unfair. During the previous general election campaign, former Prime Minister Rishi Sunak labeled this issue as "Labour's retirement tax" and proposed a "Triple Lock Plus" scheme to address the growing concerns.
As for the welfare benefits, most rates are set to increase starting Sunday, April 6, with many new rates effective from Monday, April 7. The State Pension will see a 4.1% increase in line with average earnings growth. For example, the full new state pension will rise from £221.20 a week to £230.25 a week, while the full old basic state pension will increase from £169.50 a week to £176.45 a week.
Universal Credit rates are also on the rise. The standard allowance for a single person under 25 will increase from £311.68 a month to £316.98, while the allowance for single individuals aged 25 or over will rise from £393.45 to £400.14. Joint claimants will see their standard allowance increase from £617.60 a month to £628.10 a month.
Additionally, various elements of Universal Credit will see increases, such as the child element for the first child born before April 6, 2017, which will rise from £333.33 to £339, and for subsequent children, the amount will increase from £287.92 to £292.81. The disabled child element will also see a rise, with the lower rate going from £156.11 to £158.76 and the higher rate from £487.58 to £495.87.
Other benefits, such as Personal Independence Payment (PIP) and Employment and Support Allowance (ESA), will also see increases in their rates. For instance, the lower daily living rate of PIP will increase from £72.65 to £73.90, while the higher mobility rate will rise from £75.75 to £77.05. ESA rates for single claimants under 25 will increase from £71.70 to £72.90, and for those 25 and over, it will rise from £90.50 to £92.05.
Overall, these changes mark a significant shift in the financial landscape for many individuals and families in the UK. As the government implements these increases, it remains to be seen how they will affect the broader economic environment and the lives of those who rely on these benefits.
