Autumn Budget 2026 : Changes to the State Pension
Chancellor John Healey gave his first Budget today, which he called the ‘Budget for the working people of Britain’. The budget focused on a package of cost of living reliefs rather than significant structural changes. The following pension-related news was announced:
Government confirms State Pension increase for April 2027
The State Pension Triple Lock will be maintained for the 2027/28 tax year, increasing the State Pension from £12,547.60 pa to £13,036.00 pa (equivalent to £250.69 per week) from April 2027. This increase reflects the growth in national average earnings over the year at 3.9% (compared to September CPI inflation of 3.5%).
New pension tax allowance for recipients of State Pension only
With the effects of fiscal drag there has been much speculation over the past few years on the approach the Government would take once the State Pension exceeds the lowest tax threshold, which previously could have meant pensioners who receive the State Pension as their only source of income being subject to tax charges.
Chancellor John Healey addressed these concerns in today’s Budget, putting pensioners’ minds at rest by announcing that individuals with income up to the value of the full new state pension will not pay income tax, in this Parliament. For those with incomes slightly above the State Pension, the tax relief will be gradually withdrawn through a taper.
Sarah Garnish, a consultant at Quantum Advisory said:
“It is clear that the new pension tax allowance has been put in place by the Government to protect low-income pensioners whose sole income is the state pension. There does however remain questions on this new policy as this approach will become costly quickly. The Government needs to also be careful that this approach does not disincentivise low-income individuals saving for a private pension.”
Will it be the end of an era for the State Pension Triple Lock
Over the past 15 years the Triple Lock has been highly effective at reducing pensioner poverty by ensuring the State Pension increases in line with the higher of price inflation (measured by CPI), average earnings growth or 2.5% pa. This has however come at an ever-increasing expense, now costing the Government c£15.5bn per year and threatening long-term public finances.
At a recent Labour Conference, Prime Minister, Andy Burnham announced that should the Labour Party win the next general election, it will be the end of an era for the State Pension Triple Lock as the earnings link will be removed. Any savings made would be used to not only control public spending but to also help fund a proposed National Care Service.
James Bird, a Senior Consultant and Actuary at Quantum Advisory said:
“It has been evident based on various studies in recent years that the cost of the triple lock is unsustainable. In light of this the proposal to move to a Double Lock appears a sensible move, particularly given the intent to use the funds to benefit pensioners elsewhere. The weakening of the State Pension does however bring further into focus significant upcoming pensions adequacy issues over the next 20 – 30 years.”
Reminder of upcoming pensions changes
Treatment of Pensions for Inheritance Tax
The way pensions are treated for Inheritance Tax is due to change from April 2027. From April 2027, the government will include unused pension money, such as that in Defined Contribution (“DC”) or Self Invested Personal Pension arrangements, as well as certain pension benefits on death when calculating the value of your estate for Inheritance Tax. Defined benefit pensions that are passed on to dependants will continue to be excluded.
These changes will primarily impact those with very large DC pension pots and estates. If you have significant wealth within the pension bracket, it might be worthwhile reviewing your estate plans in light of the new rules, and seek specialist advice where necessary.
Increase in minimum pension age
If you are in good health, the earliest age you can currently access pension savings in the UK is generally age 55, this will increase to 57 from April 2028, alongside planned increases to the State Pension Age.
Therefore, if you turn age 55 before April 2028 and wish to access your pension benefits at that time, you can do so. However, if you do not access your pension benefits by April 2028, you will then need to wait until you reach age 57 before accessing them. For anyone born after April 1973, the earliest age you can take pension benefits will be age 57. The minimum retirement age will then remain 10 years below the prevailing State Pension Age.
This change reflects that people are expected to live longer during retirement than previous generations and is designed to encourage people to continue working and build up sufficient private pension savings to support them through retirement.