UK Financial News update
Stories of the week
1) The Lifetime ISA Is Dead. Long Live the… First-Time Buyer ISA?
HMRC has confirmed what many suspected: the Lifetime ISA’s replacement will be a stripped-down, house-purchase-only product. If you’ve been using your LISA to save for retirement, you’ve just been shown the door.
What’s changing?
The government announced in last year’s Budget that it would consult on replacing the LISA with something “simpler.” We now know what simpler means:
First-time buyers only. The retirement savings element is being scrapped entirely.
Bonus at purchase, not on contributions. Instead of the 25% government top-up paid monthly (up to £1,000/year), the bonus becomes a lump sum at completion. That means no investment growth on the bonus while you save. Less money when you buy.
No more punitive withdrawal penalty. The hated 25% charge which actually costs savers 6.25% of their own money is expected to go. About time.
Expected launch: around April 2028. Consultation due imminently.
Why should you care?
If you’re under 40, you can still open a LISA… for now. But if you were planning to use one for retirement, the long-term utility just got murkier. Self-employed workers without workplace pensions are the big losers here, and there’s no replacement on the table yet.
Wiseones take:
The LISA was always a confused product trying to serve two masters. Splitting the goals makes sense. But ditching the retirement element without a credible alternative for the self-employed? That’s not simplification, that’s abandonment. The Pensions Commission’s interim report later this year needs to come up with something, because right now those savers are being told to figure it out themselves.
2) Salary Sacrifice: “Protected” Workers? Not So Fast.
Remember when HMRC said 4.3 million of the 7.7 million people using salary sacrifice pension schemes were “fully protected” from the Budget changes? The OBR has just blown a hole in that claim.
What’s happened?
The Office for Budget Responsibility has published new analysis showing that the real impact of the salary sacrifice crackdown will be far wider than the government suggested. Here’s why:
Employers will pass on 76% of the costs to workers through lower wages. Not lower pension contributions… lower pay.
Companies may formalise salary sacrifice across entire workforces by reducing wages and increasing pension contributions for everyone, not just those above the £2,000 threshold. Others might scrap salary sacrifice arrangements altogether.
The OBR’s own figures show this wage effect already reduces the tax yield by £700 million baked into the £4.7 billion the Treasury expects to raise in 2029-30.
Former pensions minister Steve Webb, who requested the analysis, didn’t mince words: “Far from ordinary workers being ‘protected’ from the changes, we could see millions of people on modest incomes losing out as well, further undermining their incentive to save in a pension.”
A quick reminder of the changes
From April 2029, salary-sacrificed pension contributions above £2,000 will attract employer NI at 15% and employee NI at 8% (or 2% above £50,270). The government says this “protects 95% of workers earning under £30,000.” The OBR is essentially saying: yes, but their employers might cut their wages anyway.
Wiseones take:
This is the problem with taxing employer behaviour and expecting it to stay still. Employers don’t just absorb costs, they adapt. And when the cheapest adaptation is trimming pay rises or restructuring contracts, it’s the workers who feel it first. The government wanted to close a loophole that was “set to treble to £8 billion as high earners piled in bonuses tax-free.” Fair enough. But the collateral damage to millions of ordinary pension savers who were told they’d be fine? That’s starting to look like a much bigger story.
3) Only 42% of People Understand Their Retirement Options. That Should Terrify Us.
New research from Hargreaves Lansdown: most people have no idea what to do with their pension when they actually need to use it. Among over-55s, the people who need to make these decisions now that only rises to 45%.
What’s at stake?
Since pension freedoms in 2015, the menu of options at retirement has been extensive. But choice without understanding isn’t freedom, it’s a trap. HL warned the consequences are real: buying the wrong annuity (can’t be unwound), drawing down too much too early (running out of money), or triggering unnecessary tax bills.
What’s coming?
The FCA’s Targeted Support regime, expected April 2026, will let providers offer tailored nudges to people in similar circumstances, not full advice, but more than a leaflet. Pension dashboards are also due to go live this year, giving people a single view of all their pots for the first time.
Wiseones take:
This is the quiet crisis of UK pensions. We auto-enrolled millions into workplace schemes (brilliant), gave them freedom to do whatever they want at retirement (bold), then largely left them to figure it out alone (reckless). If you’re one of the 58% without a clear plan, the single best thing you can do is book a free Pension Wise appointment. And if your situation is complex, pay for proper advice. It’s almost always cheaper than getting it wrong.
Rate watch
Bank of England Bank Rate: 3.75% ↔️
UK mortgage rates (typical averages):
2-year fixed (75% LTV): ~4.53% 🔼 0.2%
5-year fixed (75% LTV): ~4.98% ↔️
UK GDP +1.4% November 2024 to November 2025
UK Inflation Rates year on year
UK CPI – 3.4% 🔼 0.2%
UK CPIH – 3.5% (including housing costs) 🔼0.1%
UK RPI – 4.2% 🔼0.4%
Upcoming dates for your diary
February 2026
12th Feb 2026 – Crypto consultation closes (as referenced in current FCA/UK crypto policy consultation cycle)
March 2026
3 Mar 2026 – UK Spring Forecast + OBR Economic & Fiscal Outlook
Wise Money Tips
(The tax year ends Sun 5 April 2026, but Good Friday is 3 April and Easter Monday is 6 April, so admin cut-offs land earlier.)
Use your “use-it-or-lose-it” ISA allowance: up to £20,000 across ISAs in 2025/26 (frozen until April 2031). Don’t forget JISA £9,000 and LISA £4,000 (also frozen to April 2031).
Dividend tax is rising from 6 April 2026: ordinary rate 8.75% → 10.75% and upper rate 33.75% → 35.75% (additional stays 39.35%). If you hold income shares outside wrappers, consider whether ISA/pension sheltering is worth it.
Top up pensions before year-end (and check carry-forward): the annual allowance is £60,000 for 2025/26 (tapering can apply for higher earners).
VCT timing matters this year: from 6 April 2026, VCT income tax relief drops to 20% (from 30%). VCT relief can’t be carried back, so if you want 2025/26 relief, the subscription needs to be in before year-end (practically by 2 April).
EIS/SEIS investors: unlike VCT, EIS/SEIS relief can usually be carried back to the previous tax year (useful if your tax bill is lumpy).
Use key “small but real” allowances: Personal Savings Allowance (£1,000/£500/£0 depending on band), Marriage Allowance transfer, and the £3,000 annual IHT gifting exemption (resets each tax year).
State Pension uplift from 6 April 2026: full new State Pension rises £230.25 → £241.30/week; basic State Pension £176.45 → £184.90/week
Quick check: NI record (especially age 50+): a top-up year can materially improve your State Pension outcome, it is worth checking your forecast and gaps before you start making irreversible year-end decisions