State Pension, NICs & Personal Allowance Changes — What They Mean for You
The Spring Statement 2025 brought several important updates affecting individuals, especially those who are self-employed or approaching retirement. From changes to National Insurance Contributions (NICs) to adjustments in the State Pension and the continued freeze on the personal allowance, these updates will shape the way many people plan their finances going forward.
At Exchange Accountants, we’re here to help you understand how these changes impact you and what steps you may need to take.
1. State Pension Increases from April 2025
The State Pension will rise by 4.1% from 6 April 2025, in line with the September 2024 Consumer Price Index (CPI).
New State Pension: Increases from £221.20 to £230.25 per week.
Basic State Pension: Increases from £169.50 to £176.45 per week.
Why it matters: While the increase is welcome, many retirees will still find that the State Pension alone isn’t enough for a comfortable retirement. It’s more important than ever to regularly review your retirement savings and explore ways to boost your pension contributions, especially if you are self-employed.
2. NICs Changes for the Self-Employed (Class 2 & 4)
The government has made further adjustments to how self-employed workers pay National Insurance:
Class 4 NICs: The rate will be reduced to 6% (down from 9%) for profits between £12,570 and £50,270. Profits above this will continue to be charged at 2%.
Class 2 NICs:
Those with profits over £6,845 will continue to build State Pension entitlements via a credit — but they won’t have to pay Class 2 NICs.
Those with profits under £6,845 (or no profits) who want to protect their future State Pension entitlements can still pay Class 2 NICs voluntarily.
From April 2025, Class 2 NICs will rise to £3.50 per week and Class 3 voluntary NICs will rise to £17.75 per week.
Why it matters: These changes aim to simplify NICs for the self-employed, but it’s important to ensure you’re still building up your qualifying years for the State Pension. If you’re unsure how many qualifying years you have, now is a good time to check your National Insurance record via the HMRC website.
3. Personal Allowance Freeze Continues
The personal allowance — the amount of income you can earn before paying income tax — will remain at £12,570 until at least April 2028.
The basic rate band remains at £37,700, meaning the threshold for higher-rate tax remains at £50,270.
The additional rate of 45% still kicks in at £125,140.
Those earning over £100,000 will see their personal allowance taper off by £1 for every £2 of income above this level — meaning it disappears completely at £125,140.
Why it matters: The freeze on personal allowances, combined with rising wages and inflation, creates what’s known as “fiscal drag” — more people being pulled into higher tax brackets over time without any real increase in purchasing power.
What You Should Do Now
Here’s how we suggest preparing for these changes:
✅ Check Your NIC Record
Ensure you have enough qualifying years for a full State Pension. If you have gaps, consider making voluntary contributions before the top-up deadline.
✅ Plan Pension Contributions
Whether you’re employed or self-employed, maximising pension contributions can help reduce your tax bill while building for retirement.
✅ Review Tax Bands
With frozen thresholds, even modest increases in income could push you into a higher tax bracket. We can help with income and dividend planning to reduce your exposure.
✅ Seek Tailored Advice
Everyone’s financial situation is unique. At Exchange, we offer proactive tax planning to help you optimise your earnings, reduce liabilities, and plan for a more secure future.
How Exchange Accountants Can Help
Personal tax planning to help manage thresholds and allowances
NIC reviews to ensure you’re on track for a full State Pension
Pension contribution advice for both employees and self-employed
Retirement planning support to give you peace of mind
We’ll help you make informed decisions about your future. Get in touch with us today to arrange a consultation.
