The Labour government and your pension

With Labour now in power and Keir Starmer as Prime Minister, many people are asking what this means for their pensions. Before the election, there was limited detail in the manifesto. Since taking office in July 2024, the government has confirmed some important changes and set out a roadmap for further reform.

This article gives a simple overview of what’s happened so far and what is still under review.

The Triple Lock Commitment

Labour has committed to keep the State Pension Triple Lock for this Parliament. This means the State Pension will continue to rise each April by the highest of:

• Consumer Prices Index (CPI) inflation

• Average earnings growth

• 2.5%

From April 2025, this delivered a 4.1% increase to the State Pension, helping it keep pace with rising prices and wages.

Pensions reform and the second Pensions Commission

The government’s programme now combines legislation, phased implementation and the work of the second Pensions Commission. Its broad aims include:

• Improve retirement outcomes for savers

• Support UK economic growth by encouraging more productive investment

Earlier review work focused on consolidation, investment and scale, including measures intended to support productive investment and improve outcomes for savers.

The second Pensions Commission published its interim report on 19 May 2026, examining retirement adequacy and future priorities. Its final report is planned for spring 2027.

Major legislation: Pension Schemes Act 2026

The Pension Schemes Act 2026 received Royal Assent on 29 April 2026. It creates the legal framework for reforms including small-pot consolidation, value for money and retirement-income solutions, but many measures still require detailed rules and commencement steps.

• Automatically consolidate small deferred pension pots (starting with pots under £1,000) so people have fewer, larger pensions instead of many tiny ones.

• Introduce a “value for money” framework for DC schemes, so providers must show they are delivering good outcomes for members.

• Require schemes to offer retirement income solutions (not just cash lump sums), helping people turn their pot into a sustainable income.

• Support the rollout of pension dashboards, making it easier to find lost or forgotten pensions.

• Drive greater scale and consolidation in DC pensions, creating larger “megafunds” with better governance and investment options.

• Place new duties on employers around choosing and overseeing pension schemes.

Implementation is staged rather than immediate. The government’s July 2026 roadmap sets out indicative sequencing for consultation, regulations and commencement, and notes that timings may change.

Confirmed Change: Inheritance Tax on Pensions (from April 2027)

The measure is now law, although implementation guidance will continue to develop before April 2027.

Under the Finance Act 2026, from 6 April 2027 most unused pension funds and pension death benefits will be brought into the estate for Inheritance Tax purposes.

In simple terms:

• Pensions will usually count towards the £325,000 IHT threshold (nil-rate band).

• Any amount above available allowances may be taxed at 40%.

• The spouse/civil partner exemption continues to apply – passing pension benefits to a surviving spouse or civil partner remains exempt.

• Executors/personal representatives will be responsible for reporting and paying any IHT due on pension death benefits, with new duties on pension schemes to support them.

• Death-in-service benefits from registered pension schemes are outside the new pension measure.

This is a significant change for estate planning, particularly for people with larger pension pots. For more detail, see our dedicated article on Inheritance Tax and Pensions.

Auto-Enrolment Expansion – Status Uncertain

Before the election there was cross-party support for expanding auto-enrolment, enabled by the Pensions (Extension of Automatic Enrolment) Act 2023. The key proposals were to:

• Lower the starting age from 22 to 18

• Calculate contributions from the first pound earned, removing the £6,240 lower earnings threshold

Although the law gives the government the power to make these changes, it has not yet used it.

In November 2024, the Labour government said it would “consider if and when to make changes, balancing the need for improved pension outcomes with the effects on businesses.” This suggests the reforms could be delayed, phased in, or modified.

As of September 2026, no commencement date has been announced for the 2023 Act’s proposed age and earnings changes. The second Pensions Commission is considering retirement adequacy and plans to make its final recommendations in spring 2027.

Lifetime Allowance and Other Tax Limits

There was early speculation that Labour might reinstate the Lifetime Allowance (LTA), which capped how much you could build up in pensions tax-efficiently. Labour has since said it does not plan to bring back the LTA.

For now:

• The Lifetime Allowance remains abolished

• Existing limits on annual contributions and other pension tax rules continue to apply

• Further changes could still emerge as part of the wider pensions and tax agenda, but nothing has been announced beyond the new IHT rules on pensions

What Has Labour Done So Far?

Since Labour took office in July 2024, key pension developments include:

• Triple Lock delivered: 4.1% State Pension increase confirmed and paid from April 2025

• Inheritance Tax on pensions legislated: the Finance Act 2026 brings most unused pension funds and pension death benefits into estates from 6 April 2027, subject to exemptions and exclusions.

• Pension Schemes Act passed: the Act received Royal Assent on 29 April 2026, with reforms due to be implemented in stages.

• Mansion House reforms continued: Labour has chosen to push on with DC investment reforms aimed at boosting UK growth and improving long-term returns

• Auto-enrolment expansion: enabling law passed, but the new government is still reviewing “if and when” to proceed

• Second Pensions Commission: its interim report was published in May 2026 and its final report is planned for spring 2027.

Moving Forward with Confidence

The direction of travel is clear: Labour wants bigger, better-run pension schemes, more investment in the UK economy, and a tax system that treats pensions more like other assets on death.

For individual savers, the key messages are:

• The State Pension Triple Lock is currently secure and has delivered further increases.

• Workplace pensions will likely become larger and more consolidated, with more scrutiny on value for money.

• Inheritance Tax on pensions is changing from April 2027, which could have a real impact on how you plan to pass on wealth.

• Auto-enrolment expansion is still likely in the long term, but the timetable remains unclear.

At Penny, we’re here to help you consolidate and manage your pensions in this evolving landscape. If you have questions about how these changes might affect you, or how to plan around the new IHT rules, please reach out to our member support team – we’d be happy to talk things through.