Seven ways to government-proof your finances for 2025 – from pensions to savings | Personal Finance | Finance

New policies under Labour could make 2025 a challenging year, with a second wave of cost-of-living pressures and rising inflation.

Research from GoCompare reveals that over 45% of UK adults are concerned about their financial security in the year ahead.

And with growth currently stagnant thanks to Rachel Reeves’ disastrous reforms, plus tax changes and public spending cuts on the way, navigating the economic bumps is a must.

From boosting your savings to investing in high-growth opportunities, here are the financial experts’ tips to beat the Budget.

Build up your rainy day fund

Experts recommend setting aside six to 12 months’ worth of regular expenses in an emergency fund for life’s unexpected financial curveballs. Millions of pounds are currently sitting idle in low – or no – interest accounts, leaving savers missing out on potential earnings.

Rachel Springall, finance expert at Moneyfactscompare, says: “It is never too late to start saving. Easy access accounts are an ideal alternative for anyone who wants flexibility, and it’s quick and easy to open an account online. Savers would be wise to look beyond the traditional high street banks when comparing rates.”

For those looking to instil a savings habit, regular savings accounts can help by encouraging consistent deposits. Alternatively, fixed-term accounts, such as 12-month savings products, can provide a clear target for building your fund.

Starting small is better than not starting at all.

Use your ISA allowance – be prepared for stock market volatility

With inflation a rising concern and interest rates fluctuating, investors must be cautious about where they invest their money. Laith Khalaf, head of investment analysis at AJ Bell, warns that older investors, while tempted by cash investments due to higher interest rates, need to be aware that stocks tend to outperform cash over time. He said: “Cash could be part of the solution, but older savers might be best served by also investing in the stock market.”

Mr Khalaf recommends multi-asset funds that include a mix of bonds, cash, and even property or gold. “Spreading your eggs around reduces the ups and downs experienced by your investments,” he explains.

Tax-efficient investing through making full use of ISAs and pensions is vital. Mr Khalaf said: “There’s a generous £20,000 you can stick into an ISA every tax year, or £40,000 for a couple.”

Inside an ISA, any returns – whether from dividends, capital gains, or interest – are tax-free, making it a smart way to build wealth over time.

Check your pensions: £89bn is currently unclaimed

The average Briton now changes jobs every five years, so it’s no surprise many workers lose track of their pensions. Mike Ambery, retirement savings director at Standard Life, says pensioners may also be affected and should take action to unlock hidden funds.

“You might have been retired for a while but have a pot of money sitting somewhere you’d forgotten about,” he explains.

Research from asset-hunting service Gretel estimates that £65billion is tied up in lost or dormant pensions, spread across 2.8 million individual pots. Mr Ambery advises using a pension tracing tool to track down any lost pots, which could boost your retirement income significantly. Start by visiting the Government’s search tool to locate contact details for your previous employers. Visit Find pension contact details. 

Also, make sure your pensions are accessible and in the right place. Consolidating your pensions or ensuring they’re properly managed can help you avoid costly mistakes and make the most of your retirement savings. People can consolidate their pensions by transferring multiple pension pots into a single scheme, either through their current provider or by selecting a new one, often with the help of a financial adviser.”

Shield yourself against the next Labour tax raid

The key is to act now and take advantage of financial tax shelters. Use your ISAs and pensions wisely, and if you are nearing retirement, ensure you’re maximising tax relief while planning ahead.

Craig Rickman, pensions expert at Interactive Investor, says Labour’s decision to freeze income tax thresholds until 2028 could push millions into higher tax brackets, warning: “As pensioner incomes rise, millions will be pulled into the tax net.”

Tax-efficient savings options such as ISAs and pensions can help offset this worry. Mr Rickman adds: “You can pay £20,000 into an ISA every year, with no tax on any gains or income.”

Pensions offer significant tax relief; just £2,880 paid in per annum can create a £720 tax boost.

For retirees, the upcoming state pension increase of 4.1% in April 2025 provides modest relief. However, it may not provide sufficient income alone for a comfortable retirement.

Ensuring you’re on track for the full state pension is crucial. The full state pension will rise to £230.25 a week (£11,973 a year), while the basic amount will increase to £176.45 a week (£9,175 a year). If you’re approaching retirement, it’s worth checking your state pension forecast to confirm your National Insurance record is up to date. To receive the full amount, you need approximately 35 qualifying years.

The Government’s planned changes could also bring significant shifts to inheritance tax. From 2027, any unspent pension savings will be included in your estate and could be subject to IHT at a rate of 40%.

Currently, pensions are IHT exempt.

Rob Morgan, Chief Investment Analyst at Charles Stanley, warns that for persons who die after the age of 75, their heirs could face income tax on withdrawals at rates up to 45%, in addition to IHT.

He says: “Pension pots will count towards your estate from 2027, meaning a rethink for those planning to pass pensions on.”

To mitigate potential tax liabilities, Mr Rickman says: “Pensions will count towards your estate, so it may make sense to draw down pensions before other savings.”

Draw up a debt plan

While interest rates remain high, tackling debt should be a priority, says John Webb, consumer expert at Experian.

Mr Webb said: “Credit reports list your existing accounts and borrowing. For each account, make a note of any interest rate.”

Next, add up your regular income and outgoings to see how much money you can allocate toward paying off debts faster.

If you have spare cash, consider a structured repayment strategy. Mr Webb explains two common methods: the “snowball” approach and the “avalanche” method. The snowball method involves paying off the smallest debt first, which can provide a motivational boost. However, Mr Webb notes: “This is probably more of a motivational tactic than a financially prudent one.”

For maximum financial efficiency, the avalanche method is better. This is where you pay off the debt with the highest interest rate first. And by focusing on the most expensive debt, Mr Webb people can save on interest charges and speed up repayment.

If juggling multiple debts feels overwhelming, consolidating them into a single, lower-interest loan could be a smart move.

“This can simplify your borrowing, reduce your interest charges, and speed up debt repayment,” says Mr Webb.

Comparison sites like Experian allow you to check loan options without affecting your credit score.

Benefits: check your entitlement

Make sure you’re receiving all the state benefits available to you, urges Halide Kalfaoglu, benefits expert at charity Turn2us. “This support can make a real difference, helping with living costs, supporting your independence, and improving your quality of life,” she explains. Start with the State Pension: it isn’t paid automatically so you’ll need to claim it.

For those on a low income, Pension Credit can provide a vital boost to weekly income. It also unlocks additional support, such as free NHS prescriptions, dental treatments, and help with heating costs through schemes like the Warm Home Discount, Winter Fuel Payment, and Cold Weather Payment.

Housing support is also available. Council Tax Reduction can lower bills, while renters might qualify for Housing Benefit to assist with rent payments. Homeowners can look into Support for Mortgage Interest (SMI) to help cover interest on their mortgage or certain home improvement loans.

If you have care needs due to a physical or mental health condition, Attendance Allowance is worth exploring. This benefit isn’t means-tested, so your income and savings won’t affect eligibility, and it could make the person who cares for you eligible for Carer’s Allowance.

Lastly, take advantage of travel discounts like the free bus pass and Senior Railcard to reduce transport costs.

Ms Kalfaoglu recommends using the Turn2us Benefits Calculator and Grants Search tools to uncover benefits or grants you might be entitled to uncover support and ease financial worries.

Be prepared: update your will and draw up a Lasting Power of Attorney

TAKING steps to plan for the future is essential. Charles Stanley’s Rob Morgan stresses the importance of writing a will.

He says: “Without a will, you will die ‘intestate’, and your estate will be divided according to intestacy laws. This may not align with your wishes.”

Keeping an updated list of your assets, particularly online accounts that can frequently change, is equally crucial to ensure no valuable items are overlooked. Updating your will is particularly important if you have experienced major life changes, such as marriage or divorce, as these can render previous wills void or leave your partner unprotected if your relationship isn’t legally recognised.

Mr Morgan also advises setting up a Lasting Power of Attorney (LPA), which allows a trusted person to act on your behalf if you become incapacitated. There are two types: one for health and welfare and another for property and financial affairs.

He explains: “It’s vital to complete these arrangements while you are fit and healthy, as once an LPA is in effect, your ability to make changes, especially around inheritance tax planning, will be significantly limited.”