Pay growth slowing – what it means for businesses There are further signs that wage growth in the UK is starting to ease. The latest figures from the Office for National Statistics show that average earnings (excluding bonuses) rose by 3.8% in the three months to January , down from 4.2% in the previous period . That makes it the slowest rate of pay growth in more than five years . Although growth is slowing, wages are still increasing slightly faster than inflation, which stood at 3% in January . The wider labour market The overall labour market remains relatively stable. Unemployment is at 5.2% , close to a five-year high The number of people on payrolls increased by around 20,000 in February , bringing the total to 30.3 million So while there are signs of softening, it’s not a sharp shift. Public vs private sector pay One area where the difference is more noticeable is between sectors. Public sector pay growth: 5.9% Private sector pay growth: 3.3% This gap has been a consistent theme, and it continues to affect recruitment and retention in some industries. Hiring and vacancies Job vacancies have remained broadly steady. Early estimates suggest a small decline of 6,000 roles , leaving around 721,000 vacancies in the three months to February. In practice, that points to a labour market that is cooling slightly rather than contracting. What this means for interest rates These figures come just ahead of the next decision from the Bank of England. There had been some expectation of a rate cut, but that now looks less likely. Rising fuel and energy costs - linked to ongoing tensions in the Middle East - have increased the risk of inflation picking up again. That makes it more likely that borrowing costs will be held steady for now. A practical view For businesses, this creates a slightly mixed picture. On one hand, slower wage growth can ease some pressure on costs. On the other hand, inflation risks and interest rates remaining higher for longer continue to affect planning and investment decisions. It’s not a dramatic shift - but it’s another sign that conditions are changing gradually rather than quickly. Final thought The key takeaway is that while pay growth is slowing, the wider environment is still uncertain. Costs, wages and borrowing conditions are all moving at the same time, just in different directions. For most businesses, that makes it more important to keep a close eye on margins, staffing costs and forward planning over the coming months. If you’d like to talk through how this might affect your business, feel free to get in touch.

SPOTLIGHT ON: Pension allowances Practical steps to keep pension planning on track Pensions are still one of the most tax-efficient ways to save for the long term. They can reduce taxable income, support how business owners take money out of their company, and build retirement funds in a structured way. Where things tend to go wrong is not the idea of contributing - it’s contributing without checking the rules first. That’s when a sensible contribution can lead to an unexpected tax charge. The good news is that most issues come from a fairly small number of areas: the annual allowance, tapering for higher earners, the money purchase annual allowance (MPAA), and missed carry forward checks. For the 2025/26 tax year , the standard annual allowance is £60,000 , but in some cases it can fall to £10,000 . This guide looks at the key checks to make before contributing and where problems usually arise. Start with the annual allowance For most people, the starting point is the standard annual allowance: £60,000 for 2025/26 Applies across all pensions combined , not each one separately Going over it can trigger a tax charge if there isn’t enough carry forward available One of the common misunderstandings is what counts towards that limit. It’s not just what you personally pay in. It can include: Personal contributions Employer contributions Contributions made by others Pension growth under defined benefit schemes This is why people get caught out - the figure used for tax purposes is often higher than expected. Tax relief isn’t the same as the allowance Another area that causes confusion is the difference between tax relief and the annual allowance. In simple terms: The annual allowance is the limit before a potential tax charge Tax relief on personal contributions is usually limited to 100% of your earnings Employer contributions follow different rules This is particularly relevant for directors and business owners. For example, someone with a low salary might assume they can’t contribute much personally, but employer contributions could still be an efficient route. Equally, staying within personal earnings limits doesn’t guarantee you’re within the annual allowance once everything is added together. Check if tapering applies For higher earners, the full £60,000 allowance doesn’t always apply. Tapering can reduce it where: Threshold income exceeds £200,000 Adjusted income exceeds £260,000 If tapering applies: The allowance reduces by £1 for every £2 over £260,000 It can fall to a minimum of £10,000 This is a common source of surprise tax bills, especially where income fluctuates - for example through dividends, bonuses or business profits. Watch for the MPAA The money purchase annual allowance (MPAA) is another key area. For 2025/26, it is £10,000 and can apply if you’ve flexibly accessed a pension . This often catches people who: Take taxable income from a pension Assume it’s a one-off decision Then later want to contribute again Once triggered, it can significantly limit future contributions. Don’t overlook carry forward Carry forward can make a big difference. HMRC allows unused allowance from the previous three tax years to be carried forward, subject to conditions. This is particularly useful where: Profits increase A business wants to make a larger contribution Retirement planning has been delayed But it’s also an area where assumptions cause problems. You need to check: Whether you were part of a pension scheme in those years What your actual allowance was Whether tapering applied How much was already used It works well - but only if the numbers are correct. Where issues usually arise Most pension tax charges aren’t caused by pensions themselves, but by lack of review. Common causes include: Assuming the allowance is always £60,000 Missing tapering for higher earners Forgetting the MPAA applies Ignoring employer contributions Relying on carry forward without checking Making last-minute contributions without reviewing income Most of these are avoidable with a simple annual check. Income changes make this more important Planning becomes more sensitive where income varies. Extra care is usually needed if you: Take a mix of salary and dividends Run your own business Receive bonuses or irregular income Are approaching retirement Have started taking pension withdrawals In these cases, it’s better to review contributions during the tax year rather than relying on assumptions. A simple review process A short review before making contributions can prevent most issues. This should cover: Total pension input for the year Whether the full allowance applies Whether tapering is relevant Whether the MPAA applies Available carry forward Whether personal or employer contributions are more efficient It doesn’t need to be complicated - but it does need to happen before money goes in. Other limits to keep in mind The annual allowance is the main consideration, but there are other pension limits worth noting. For 2025/26 : Lump sum allowance: £268,275 Lump sum and death benefit allowance: £1,073,100 These are less likely to create immediate issues but still matter for long-term planning. Final thought Pensions remain a strong planning tool, but the rules aren’t always as simple as the headline figures suggest. Most problems aren’t about contributing too much - they’re about not checking first. A short review each year is usually enough to avoid surprises. If income is changing or you’ve started accessing pensions, that review becomes more important. If you’d like help checking your position before making contributions, feel free to get in touch.