The ‘positive’ news that the state pension is increasing on April 6th 2026 to an annual £12,547.60, should be offset against the potentially ‘negative’ news to contractor finances that Wednesday’s Autum Budget 2025 may contain, writes Angela James, founder of Yolo Wealth.

I want to caution those with an interest in contractor pensions, however, that financial decisions must not be taken on the back of hearsay alone. That’s the other thing, of course, that’s nice about the state pension increase — while Britain’s most expensive benefit won’t cause too many contractors to pop champagne corks, at least it’s now set in stone, with effect from the 2026/27 tax year.

What unifies outside IR35 contractors and umbrella company employees

Whether you are a contractor inside IR35, on the payroll at an umbrella company, or outside IR35 via a limited company, you are most likely already taking advantage of your pension allowances and retirement planning.

If you’re not taking advantage, get in touch to reserve one of the slots in my ‘free consultation’ calendar!

But assuming you are building a nest egg as a contractor, regardless of your set-up, it is totally understandable to fear (sorry, ‘be a tad anxious about’) what pension changes chancellor Rachel Reeves announces on November 26th.

Like dividends, pensions have taken a pasting from previous chancellors

To be frank, there is fear. There’s even a bit of loathing too. In recent years, it feels like pensions have taken a bit of a beating when chancellors get to their feet.

But it’s not just pensions. Dividend taxation, income tax thresholds, and capital gains taxes have all been raided at past budgets.

And I sense that one or more of these three could be on Reeves’ agenda at her impending second budget.

Autumn Budget 2025: Five contractor personal finance areas to watch out for

You’ll need to look at your own particulars in regard to those three (or reach out to me if you’re struggling with the numbers), in conjunction with the five areas of contractor personal finances I want to look at here:

State Pension

Pension Allowances and Tax Relief

Salary Sacrifice

Pensions Commencement Lump Sums

Pensions and Inheritance Tax

State Pensions

While the UK’s ‘triple lock’ has been pivotal in ensuring that pensioners have seen the increases to their state pensions promised, they’ve absolutely needed it with the soaring cost of living.

However, 2026/27 is going to mark the last year that the state pension (£12,547.60) will fall within the personal allowance (unchanged since 2022 at £12,570).

Therefore, from next year, the state pensions will likely — in most or all cases become subject to some income tax.

Some commentators and even contractors may not see this as an issue. But it highlights the impact of the frozen thresholds, and it cues up the infrastructure that will be needed to ensure that pensioners are taxed by HMRC.

Will Autumn Budget 2025 accelerate state pension age?

There’s another big change to the state pension on the horizon.

The state pension age, currently 66, is set to rise to 67 between 2026 and 2028 and then to 68 between 2044 and 2046.

There are suggestions that this staggered increase in the state pension age could be accelerated or even increased further, to age 69, in the future.

For those contractors considering retirement, this effective delay to receiving your state pension will need to be considered, as more effort will need to be made to plan for your own future if you wish to retire sooner.

My personal take on the state pension as a financial adviser who specialises in contractor personal finances is this. The state pension is really just the very basic foundation stone of retirement, and it’s therefore pivotal that contractors build upon it with their own pension plans and retirement savings.

Pension Allowances & Tax Relief

Before contractors worry too much about any potential autumn budget changes to pension allowances and tax relief, these two are such regular rumours, almost always ripe for the chancellor’s axe, that I’ve grown cold on the prospect of either actually happening this year.

Remember, it’s not in the government’s interest to remove pension tax relief or allowances in their entirety. After all, the government will always need to incentivise us to save for the longer-term future.

How much is the pension allowance?

As a contractor, your pension allowance is currently £60,000, subject to personal circumstances.

It’s not inconceivable, of course, that Autumn Budget 2025 could reduce this allowance, or even cut it back to the £40,000 level it was (pre-April 2023).

I’m glad to say the rumour mill does not seem to be churning in this area.

However, there is speculation that pension tax relief could be cut to 30%, or a flat rate of 30% introduced. While either would be disappointing for those in the higher rate brackets, if you’re a contractor funding your pension through your own limited company, you’re already funding it in the most tax-efficient way possible. And such a cut wouldn’t change the levels of corporation tax relief you obtain.

Contractors with auto-enrolment pensions would be hardest hit

The contractors who’d be most impacted by a pension tax relief clawback by Rachel Reeves would be those funding their auto-enrolment pensions through their umbrella company employers.

My view? It wouldn’t be a good look for Labour to cut the pensions of the very workers IR35 reform has corralled into umbrellas, but should this happen, the relief would still represent an attractive proposition for reducing your HMRC tax liabilities.

Salary Sacrifice

Salary Sacrifice is a financial area that, if hit at Autumn Budget 2025, would have more impact on those contractors working on the payroll via umbrella companies.

If you are making salary sacrifice pension contributions as a contractor and taking advantage of all the tax and NI savings, this brings to the fore the next rumoured change, and it would be even more disappointing.

Some have suggested that the ability to make salary sacrifice contributions could be scaled back or capped under Reeves’ fiscal statement.

Contractors, employees and employers alike would all bemoan salary sacrifice changes

Individuals are already limited by the (maximum) £60,000 annual allowance, but a lower cap would bring disappointment to tax planning for both contractors and employers.

Employers have taken a more proactive approach in this area (having been bruised by the chancellor’s previous increases to national insurance at Autumn Budget 2024). And salary sacrifice has proven to be a useful way for employers to reduce the burden of higher National Insurance costs.

Perhaps this alone is why salary sacrifice seems to be on the chancellor’s chopping block.

Pension Commencement Lump Sums

Once the pension Lifetime Allowance was abolished on April 6th 2024, with the effect that the overall limit an individual could hold in pensions at retirement without incurring additional tax charge was removed, a new lump sum allowance was introduced.

This is the maximum amount tax-free that a contractor can take from their pension at retirement. It’s currently capped at £268,275.

Many feel that this maximum withdrawal is at real risk of being reduced by Reeves, and some contractors have even told me they are concerned it could be withdrawn altogether on Wednesday!

The premature rush

Due to this rumour, pension advisers like me have been asked for guidance by many retirement savers rushing to take their tax-free sums early!

I think such a move is premature, partly because it’s an irreversible decision.

Should the chancellor reduce or remove the £268,275 cap, it would, however, deal a devastating blow to pensions and pension planning.

My recommendation is to hold off any pension withdrawal decision, unless you are a contractor who has a genuine, specific, pressing need for your lump sums. Should Reeves wield the axe, a period of time would likely be provided for transitional protections and decisions to be made.

Pensions & Inheritance Tax

It has already been announced, reviewed and assessed, and it’s going ahead — pensions will come into estates on death, effective from April 2027.

This major change, effectively putting pension funds within the value of a deceased person’s estate for IHT purposes, even has the potential for further changes.

But hopefully a further tightening of the April 2027 IHT screw isn’t on the cards

However, in my view, with these potentially further changes so far staying off the table, and with more details on 2027’s inheritance tax on pension death benefits policy still getting drip through, it feels like an area that may need to settle down more before (further) complication is added.

To recap, unused pensions can currently be passed to beneficiaries outside of the estate, meaning on death, unused pensions do not form part of the estate calculation for the 40% IHT charge. Pensions have their own specific tax rules on death.

Effective from April 2027, however, any unspent pensions will form part of the estate calculation and any excess over an individual’s £325,000 allowance, or £500,000 with main residence relief (if eligible), will be taxed at 40% in addition to the current pension tax rules.

Other IHT changes that seem more realistic at Autumn Budget 2025 relate to gifting allowances and taper relief. Those have no direct impact on pensions (at present).

Final thought

The impending Autumn Budget 2025 feels like it has been the most pre-announced Autumn Budget ever. Indeed, as far back as August 2025, I was placing my bets that the chancellor’s November 26th statement would very likely continue the big freeze to income tax thresholds. And so far, both the UK’s mood music and rumour mill make me think Rachel Reeves will indeed get more out of contractors in the shape of ‘stealth tax.’

Like much of the nitty and gritty in the above five main areas of contractor personal finance, even more fiscal drag is admittedly just more speculation and rumour — on my part!

This article is for information purposes only and does not constitute advice.