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What’s going on in the pensions world?

Keep up to date with the latest pensions news and developments in the Fund.

The Budgets of the past few years have seen significant change in pensions policy. Earlier this year, the Pension Schemes Act 2026 set out a range of its own sweeping reforms. 

Against this backdrop, the first Budget of Andy Burnham's government focused on stability, introducing only minor changes when it comes to pensions.  

The two-year tax deadline on pension death benefits will end 

Currently, if a pension scheme member who's over 75 dies, their pension death benefits have to be paid out to their loved ones within two years of the pension scheme's administrator learning of their death. 

If these benefits are paid out more than two years after the administrator learns of the member's death, they can be taxed. 

The Budget scrapped this rule, so now death benefits can't be taxed regardless of when they're paid out. This applies to payments made on or after 28 October 2026. 

The taxation of pension lump sums will change 

If a pension scheme member dies before reaching age 75, certain pension lump sum death benefits can be paid out tax-free, up to their remaining Lump Sum and Death Benefit Allowance.

The Lump Sum and Death Benefit Allowance is the total amount that can be paid out tax-free in lump sums during the member’s lifetime and when they die.

This money would be paid out to the member’s beneficiaries, meaning the loved ones they’ve nominated to receive it. But if the money paid out exceeds the allowance, the beneficiaries would have to pay tax on the excess.

The way this will be taxed is changing.

Going forwards, the tax a beneficiary pays on this excess will be paid at their marginal rate of income tax. This just means the highest rate of income tax they pay. Learn more about how income tax works.

The change won’t affect the rate of income tax the beneficiary pays. Instead, it’s designed to simplify the process and provide a clearer route to settling the tax charge.

A new tax allowance on pensions 

Although you have a workplace pension with us, we're aware that changes to the State Pension may also affect you. 

The Personal Allowance, meaning the amount of income you can receive before paying income tax, has remained the same in recent years. But the State Pension has been rising every year and is set to overtake the Personal Allowance from April 2027.  

The State Pension is currently £12,548, and will increase to £13,036 in the new tax year. The standard Personal Allowance before income tax has to be paid is £12,570. 

However, the Budget includes a new Pension Tax Allowance from April 2027, so that pensioners with a total income of less than £13,036 won’t have to pay income tax. 

This applies if your total income (including income from the State Pension, workplace pensions, work, or savings) is no more than the full annual value of the new State Pension (£13,036). The Pension Tax Allowance will be applied automatically, so you won't need to claim it. 

If the total pension income you bring in is above £13,036, you might still be able to pay less income tax. The higher your income is, the smaller this new Pension Tax Allowance gets, until it vanishes completely. For every £3 of income above £13,036 you bring in, your Pension Tax Allowance will reduce by £1. 

Learn more about how the State Pension interacts with your pension with us. 

What else do I need to know about the Budget and my pension? 

The government had already announced that changes to the State Pension "triple lock" will come into effect from 2030, if it remains in power. The "triple lock" is a rule that increases the UK State Pension each year by the highest of either inflation, average earnings growth, or 2.5%. These future changes are intended to slow the rate of the State Pension's increase, so that it rises in line with average earnings rather than consistently growing faster than wages. 

There are also upcoming changes to Inheritance Tax. Currently, if you die before claiming your full workplace pension, it can be passed on tax-free. However, from April 2027 any workplace pension pots left behind will be considered part of your estate when Inheritance Tax is calculated. Inheritance tax is charged at 40% on estates worth more than £325,000, or £500,000 if your home is left to children or grandchildren.