Autumn Budget 2026: Key pensions changes explained

The 2026 Autumn Budget, the first delivered by Chancellor John Healey under the new Burnham administration, included two previously announced headline pensions measures, alongside several more technical changes detailed in the Budget document.

Pension Tax Allowance 

First, the Chancellor confirmed an earlier 2025 Budget commitment to introduce the Pension Tax Allowance to protect lower-income pensioners from paying income tax solely because of increases to the State Pension. From 6 April 2027, the tax allowance will be available automatically to people above State Pension age whose total income from all sources does not exceed the full new State Pension. Those earning slightly more will see the allowance withdrawn by £1 for every £3 of excess income.

The full new State Pension is expected to increase from £12,547.60 to approximately £13,036 a year, around £466 above the £12,570 Personal Allowance. The deduction will be uprated alongside the full new State Pension and will apply until 5 April 2030. It will be legislated for in the Finance Bill 2026–27, with arrangements beyond April 2030 to be considered in due course.

Changes to the Triple Lock

The Chancellor also reiterated the Prime Minister’s previously announced plan to adjust the Triple Lock from April 2030 with the aim of placing it on a more ‘sustainable’ footing and reducing uncertainty over future State Pension expenditure. Thereafter, the State Pension will increase by the highest of CPI inflation, 2.5% or the amount needed to maintain its value relative to average earnings over time limiting the extent to which the State Pension grows faster than earnings over time. The Government estimates that the change will reduce State Pension spending by £15bn a year by the end of the 2030s, rising to £50bn a year by 2050, with the savings intended to support a new National Care Service.

The tax protection addresses the immediate problem caused by the State Pension exceeding the Personal Allowance. Its tapering should reduce the risk of cliff edges for pensioners whose modest additional income would otherwise put them outside its scope. However, the operation of the taper will need to be clear for pensioners to understand and straightforward for HMRC to administer.

The revised Triple Lock formula should provide greater certainty over the State Pension’s long-term relationship with earnings. However, pensioners may receive smaller increases than under the current formula in some years. Its effectiveness will therefore depend on whether it maintains pensioners’ living standards while delivering the projected savings.

Technical pensions measures

The Budget also contains several technical pensions measures, which will be introduced through future Finance Bills. They include changes facilitating defined contribution (DC) consolidation, guided retirement and retirement-only collective DC arrangements. Separately, the definition of terminal illness for pension tax purposes will be made more flexible. The current requirement for medical evidence that an individual is expected to live for less than one year will be replaced by a test of whether the member can reasonably be expected to live for less than a year. Medical practitioners registered overseas will also be able to provide the necessary evidence. 

Changes to pension death benefits

The Government will also remove the two-year rule, under which beneficiaries can face income tax on pension and lump sum death benefits that would otherwise have been tax-free simply because payment was made more than two years after the scheme administrator first knew, or could reasonably have been expected to know, of the member’s death. The change will apply to payments made on or after 28 October 2026 and therefore appears capable of covering payments relating to earlier deaths. The Government also intends to revise how tax is assessed and collected where the deceased’s lump sum and death benefit allowance has been exceeded, with the aim of making the position clearer for beneficiaries. Any tax due will continue to be charged at the beneficiary’s marginal income-tax rate, but the excess will no longer be treated as pension income for other tax purposes.