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.

Comprehensive Pensions Review and Investment Reforms

The government has launched a wide-ranging pensions review, with two main aims:

• Improve retirement outcomes for savers

• Support UK economic growth by encouraging more productive investment

Phase 1 has focused on consolidation and investment (including the continuation of the “Mansion House” style reforms to encourage defined contribution (DC) schemes to invest more in growth assets, including in the UK).

Phase 2 is expected to look more directly at pension adequacy – in other words, whether people are on track for a decent income in retirement – and may consider issues such as contribution levels and support for different groups of savers.

Major Legislation: Pension Schemes Bill

A key part of Labour’s agenda is the Pension Schemes Bill, announced in the King’s Speech and now progressing through Parliament. In simple terms, it is designed to:

• 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.

The government estimates these reforms could add around £11,000 to the average saver’s pension over a lifetime by reducing the number of small, poorly performing pots.

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

What started as speculation in summer 2024 is now confirmed government policy.

In the Autumn Budget 2024, Chancellor Rachel Reeves announced that from 6 April 2027, most unused pension funds and death benefits will be brought into your estate for Inheritance Tax (IHT) 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 are expected to remain exempt from IHT.

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 November 2025, there is no confirmed timeline for implementing auto-enrolment expansion. The government’s Phase 2 pensions review, which will look at retirement adequacy, may give more clarity.

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 confirmed: from April 2027, most unused pension funds and death benefits will be brought into your estate for IHT, with draft legislation published and updated in 2025

• Pension Schemes Bill introduced: major reforms on consolidation, value for money, and retirement income solutions are moving through Parliament

• 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

• Comprehensive pensions review: Phase 1 (consolidation and investment) is complete; Phase 2 is expected to focus more on whether people are saving enough

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.