Pensions in 2026: What you need to know about state pension age rise to 67, a brewing tax row and more…

Fear that a cash-strapped government might come after pensions with new rules, caps and taxes is unlikely to let up in the coming year.

If the Chancellor doesn’t rule out new limits on 25 per cent tax-free cash, we could see a third damaging year in a row of panicked withdrawals from retirement pots.

This is Money ran many stories warning people against taking tax-free cash unnecessarily and based on pure speculation before the last Budget. 

The move is irreversible and you can miss out on investment growth under the tax protection of a pension in future. And tax free cash wasn’t touched in the end, as our retirement columnist Steve Webb predicted in advance to readers.

Rachel Reeves did clamp down on saving into salary sacrifice schemes to boost pension pots, though this will not start until 2029.

The Government is also forging on with plans to make pensions liable for inheritance tax, which is going to become a more pressing issue for affluent families in anticipation of the April 2027 start date.

People bringing forward lifetime spending or gifting has been another driver of pension withdrawals, but experts warn you should ensure you have enough to live on in retirement before doing so.

We delve into these and other big issues facing pension savers and retirees below. Here’s what you need to know in 2026.

1. State pension age: New pensioners will have to wait beyond 66

Starting in April, the state pension age will begin rising from the current 66 in a phased process that will make it 67 for everyone from April 2028. 

If your 66th birthday is pending, see the timetable below.

The next age increase is also officially up for debate, after the Government launched two new studies – which it is required to do by law every six years – that will look at when to hike to 68.

The Government has effectively, if not in so many words, told the experts working on the reports to operate under the assumption that the triple lock pledge will remain in place indefinitely.

This means that the state pension increases every year by the highest of inflation, average earnings growth or 2.5 per cent. 

The Government has promised to stick to the triple lock for the whole of this parliament.

The trade-offs between the state pension age and annual increases are likely to come under greater scrutiny .

Experts say the triple lock tends to benefit better off elderly people who live longer, while raising the state pension age to help fund the higher annual rises disproportionately affects poorer pensioners who have lower life expectancy.

Meanwhile, the minimum age to access work and other private pensions is also scheduled to go up, from 55 to 57, but not until April 2028.

2. State pension increase: Row is brewing over new tax waiver

The Government’s idea to let pensioners off paying income tax if their only income is the state pension is proving controversial.

It’s only in the planning stage so far, but if implemented it could drive a wedge between pensioners who are exempt and those still expected to stump up tax.

The annual full rate new state pension for those retiring since 2016 will increase to £12,548 a year from next April.

That just nudges the threshold where people start being stung for income tax, which is £12,570 and is set to be frozen until at least 2030/31.

This puts the Government in a bind, because if it keeps its popular triple lock promise to increase the state pension by at least 2.5 per cent a year, that will tip it over the basic rate tax threshold in April 2027.

A 2.5 per cent rise would make the state pension £12,862 in 2027/28, so someone with this income only would have taxable income over the threshold of £292 per year, and face a tax bill of around £58, calculates pension consultancy LCP.

The Government therefore announced in the Budget it is going to explore ways to avoid pensioners having to pay a small amount of tax.

But excusing some pensioners from paying income tax risks being ‘unfair and unworkable’, according to former Pensions Minister Steve Webb, now a partner at LCP and This is Money’s retirement columnist.

Many pensioners already receive a state pension over the £12,570 personal allowance, landing them with an income tax bill if they earned state pension top-ups during their working life or delayed taking the payments at state retirement age.

Those who built up even a small private pension also pay income tax already.

‘Millions of pensioners already get state pensions above the tax threshold and nothing has so far been done for them. So there is a real risk that pensioners on the new system will be more favourably treated,’ says Webb

‘The new scheme also risks penalising people with small private pensions who will not be protected compared with those who have no private pension who will be protected.

‘This penalises those who have saved, even modest amounts. And the new rules will mean that a pensioner just above the tax threshold will pay no tax whilst an employee on exactly the same income will pay both tax and NICs which seems unfair.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says of the Government plan: ‘It will give those pensioners who were worried about the prospect of a tax bill some comfort.

‘However, the news will have brought unease to many pensioners who already pay tax because they have saved into a pension while working and will feel unfairly treated.’

3. Pension dashboards: Rollout to begin after years of delay

Long-promised pensions dashboards that allow people to see all their retirement pots at a glance will finally go public.

The project was announced at the Budget of 2016, with the launch date mooted for 2019, but it has taken the entire past decade to get it off the ground.

The dashboard plan is to give people up-to-date, accurate information on all their pension funds in one go, so they will be better informed and equipped to make decisions about how to fund retirement.

But there has been much toing and froing over the years about making the scheme mandatary – to force pension firms reluctant to spend time and money on the project to sign up – and how to make people’s financial information secure.

There has long been concern that scammers could hack or exploit the information on dashboards to steal people’s retirement pots.

Jonathan Watts-Lay, director of Wealth at Work, says dashboards will roll out throughout the year, with all schemes required to connect by 31 October, though dates will also depend on scheme type and number of active and deferred members.

‘Dashboards will give people a view of all their pensions in one place. This can make it much easier to understand what they’ve built up, spot any gaps, and plan for the income they’ll need in retirement.’

Chris Eastwood, chief executive of Penfold, says: ‘As consumer testing and awareness ramp up, we expect more people to discover lost pots, compare providers, and consolidate.

‘Dashboards will make pensions feel like a modern financial product, and people will expect to see and manage their pension as easily as banking.’

4. New law pending: Using pensions to boost growth

A Pension Schemes Bill aimed at boosting individual people’s pensions and economic growth is being worked on in parliament.

The measures include a clampdown on defined contribution pension schemes offering poor value for money to savers, forcing them to merge if they are falling short and creating ‘mega’ funds which can make better investment returns.

The Bill will also make pension schemes offer people reaching retirement age clear ‘default’ options to turn their fund into an income to live on in old age.

Meanwhile, in the Government’s Mansion House Accord, 17 pension firms voluntarily pledged to put 10 per cent of the funds they manage for savers into UK-based unlisted private businesses and infrastructure projects by 2030.

The Government has held off from forcing pension fund managers to invest more in the UK in the new Bill, but not taken this off the table for the future.

In another initiative, it has launched a new Pensions Commission to tackle undersaving for retirement and try to stop future retirees ending up poorer than older people today – but this will not report back until 2027.

Chris Eastwood of Penfold says: ‘The Pension Schemes Bill agenda includes mandatory defined contribution consolidation into larger megafunds and a policy push toward more investment in UK growth and private markets.

‘Scale should mean better net returns for savers and more long-term investment in the real economy if done right.’

Former Pensions Minister Ros Altmann, who now sits in the House of Lords, says the Bill will come before it in January, and she believes there is a great opportunity to use pension assets to generate desperately-needed economic growth.

‘UK pension schemes have been selling British investments to buy assets such as equities and infrastructure overseas,’ she says. ‘This failure to support British companies has put us in a needless doom loop and driven UK markets to excessively cheap valuations.

‘Pension funds could provide the key to reversing this negative spiral, which has seen some of our best companies snapped up on the cheap by foreign predators, or moving away from the UK to list elsewhere.’

‘If the Government ensures pension funds use far more of their £80billion in tax reliefs each year to back British businesses, as well as vital projects for home-grown start-ups, scale-ups, biotech, infrastructure and property, the return of a reliable long-term domestic investment base would be a real game-changer.’

Altmann adds that all local authority pension schemes have sizeable surpluses, which could allow councils to take contribution holidays and use the money to pay for community services including care and social amenities.

5. State pension top-ups: Review announced after years of frustration

On Budget day, the Government announced it was launching a review of the state pension top-ups system.

This allows people who don’t have a full state pension record – with 35 years required to get the full amount – to make voluntary National Insurance contributions to boost their payouts.

The Government also intends to close loopholes allowing people to make contributions at a cheaper rate while living overseas, and to increase the initial residency requirement for buying them to 10 years.

This is Money has been deluged by readers complaining about state pension top-ups money vanishing and other blunders, and we have investigated some cases stuck in the system for years.

There is also apparently a backlog for getting a refund from HMRC if you paid the wrong amount for any reason.

This is Money has run a long campaign urging the Government to get a grip on the tortuous system, after hearing from so many people in despair about large sums going missing.

We repeatedly hear complaints about the Department for Work and Pensions and HMRC, which run the top-ups system between them, sending people from pillar to post in their different departments and blaming each other for problems.

We don’t know details of the review yet, or whether there will be a public consultation – or even if it will be limited in scope, for example to whether top-up prices should be raised.

We have previously called for the following changes.

1) Create one state pension top-ups department, under one boss, staffed by people drawn from both DWP and HMRC who together can deal with the entire process from start to finish, whether online or offline.

2) Find out where the current worst delays are happening, which would be easier if there weren’t two departments that can blame each other, and then sort out the bottlenecks.

3) Revamp the call centre operation so people who ring up about top-ups receive help with their problem, by introducing an effective filtering system so all queries are dealt with, while the most serious issues are sent up the line.

4) Do a sweep for the oldest complaints about top-ups, however intractable they might look, and get a trouble-shooting team onto them.

> Should you top up your state pension?

6. Inheritance tax: Planning ahead to dodge pensions raid

Pensions will be drawn into the inheritance tax net from April 2027, and families are already making new arrangements to avoid the levy.

The big rise in people taking pension tax-free cash over the past year is partly down to more lifetime spending and gifting to family members.

Do check your estate will be big enough to be liable for inheritance tax when you die before worrying about this issue. Our guide to inheritance tax including the key thresholds is here.

However, counter measures like buying life insurance to mitigate against bills, and changing wills in favour of spouses – who are exempt from inheritance tax – are likely to ramp up as the date of the changes gets closer.

Adrian Murphy, chief executive of Murphy Wealth, says bringing pensions into estates is one of the biggest financial planning changes of recent years.

‘While the change itself is more than a year away, this will be the big theme for 2026.

‘More people are willing to pay much more for life insurance policies that will cover the inheritance tax liability of their families when they pass away – in some cases for as much as £1,000 per month.

‘With no rules introduced around limitations on gifting during the Budget, we are also seeing more people give substantially more gifts to their families earlier in life.’

Murphy adds that annuities could become more popular again.

‘With gilt yields still relatively high, they are an attractive proposition to some people approaching retirement, providing a secure income and reducing the size of your estate.

‘However, the catch is you cannot pass this on to your family, which may make it self-defeating for those with inheritance in mind.’

Meanwhile, former Pensions Ministers Steve Webb and Ros Altmann have both warned sorting out estates is set to become far more onerous because bereaved families will have to chase up pension companies for vital information.

Stiff late payment charges could be levied if you fail to track down all pensions, and work out and settle the bill within six months.

> 10 ways to avoid inheritance tax legally