Millions of pensioners and savers across the UK are set to experience significant changes to their retirement finances in 2026. The Department for Work and Pensions (DWP) has confirmed a series of major reforms and updates, headlined by a substantial increase in the State Pension that will bring it perilously close to the tax threshold for the first time.
State Pension Boost and the Looming Tax Change
From April 2026, the State Pension will increase by 4.8% under the government's 'triple lock' guarantee. This mechanism ensures the pension rises by the highest of three figures: average earnings growth, Consumer Prices Index (CPI) inflation, or 2.5%.
This uprating means the full new State Pension will rise to approximately £241.30 per week, equating to an annual income of around £12,535. This represents a yearly increase of roughly £574 for those on the full amount. However, this boost carries a significant consequence, as highlighted by money saving expert Martin Lewis.
"This will take someone on the full new State Pension to £12,535 a year, only £35 below the frozen personal allowance," Lewis explained. "So as State Pension income is taxable, that means without any question the following year... those on the full new State Pension with no other income will for the first time pay tax on it."
This shift occurs because the personal allowance—the amount you can earn tax-free each year—is frozen at £12,570, while the pension continues to rise.
Rising Pension Age and New Pension Types
Another pivotal change scheduled for 2026 is the start of the increase in the State Pension age. The government plans to raise it from 66 to 67 between 2026 and 2028. This change will affect anyone born on or after 6 April 1960.
Alongside this, a new type of workplace pension scheme will open to savers from late 2026. Known as Collective Defined Contribution (CDC) schemes, they aim to offer a middle ground between traditional defined benefit and defined contribution pensions.
"Collective pensions offer a better deal, one where risks are shared, returns are smoothed and retirement incomes are stronger and paid for life," said Pensions Minister Torsten Bell.
Pensions Dashboard and Inheritance Tax Implications
After years of development, the long-awaited pensions dashboards are slated to become available from October 2026. This service will allow individuals to see all their pension pots in one secure place online.
Rachel Vahey, head of public policy at AJ Bell, stated: "Doing so will give people the ability to see all their pensions in one place at the touch of a button. The dashboard will hopefully make a difference in giving people the confidence to face up to their pension planning."
Furthermore, while a change to inheritance tax on pensions officially begins in April 2027, it will affect financial planning throughout 2026. Pensions will be brought into the scope of inheritance tax, making estate planning more crucial.
"It’s important that people who think their estate may be subject to inheritance tax have an up-to-date valuation of their estate," advised Stephen Lowe, a director at retirement firm Just Group. "Taking professional financial advice can be immensely valuable for those wanting to manage their estate efficiently."
These five changes—the State Pension increase, the rising pension age, the launch of CDC schemes, the introduction of pensions dashboards, and the impending inheritance tax shift—mark 2026 as a landmark year for retirement planning in the UK, with profound implications for millions of current and future pensioners.
