UK pension rules are among the most complex areas of personal finance. The 2026 landscape is shaped by the removal of the lifetime allowance, upcoming IHT changes on pension assets from April 2027, and growing demand for retirement income planning. This is the complete guide.
Types of UK Pension
- State Pension — paid from age 66 (rising to 67 in 2028). Full new state pension is £221.20/week in 2025/26, requiring 35 qualifying NI years.
- Workplace pension — defined benefit (final salary) or defined contribution (money purchase). Auto-enrolment requires minimum 8% of qualifying earnings (3% employer, 5% employee).
- Personal pension / SIPP — individual arrangements accepting up to 100% of earnings or £3,600 gross (whichever is higher) per year.
Annual Allowance 2026/27
The annual allowance is £60,000 — the maximum contributable tax-efficiently each year across all pensions including employer contributions. High earners may be subject to the tapered annual allowance. See our tapered annual allowance guide.
Pension Tax Relief
| Tax Rate | On £10,000 contribution | Net cost |
|---|---|---|
| Basic rate (20%) | £2,500 added by HMRC | £8,000 |
| Higher rate (40%) | £5,000 total (extra claimed via tax return) | £6,000 |
| Additional rate (45%) | £5,625 total | £5,500 |
Lifetime Allowance: Abolished April 2024
The lifetime allowance (formerly £1,073,100) was abolished on 6 April 2024. The lump sum allowance now governs tax-free cash — set at £268,275 (25% of the old LTA). There is no longer any cap on total pension savings that can be accumulated tax-efficiently.
Pensions and IHT from April 2027
One of the most significant changes from the October 2024 Budget: unused defined contribution pension assets will be included in an individual’s estate for IHT purposes from April 2027. Currently pensions fall outside the estate entirely. From 2027, unused pension funds will be subject to IHT at 40% above the nil-rate band — making drawdown sequencing, beneficiary nominations and estate planning far more complex.
Pension Drawdown Options
- Flexi-access drawdown — keep the pension invested, draw income as needed. Flexible but subject to investment risk.
- Annuity — guaranteed income for life. Rates have improved significantly following 2022–2023 rate rises.
- Uncrystallised Funds Pension Lump Sum (UFPLS) — lump sums with 25% tax-free, 75% taxable.
- Combination — most retirees blend guaranteed income for essential spending with drawdown for discretionary.
State Pension 2026
Full new state pension pays £221.20/week (£11,502/year), uprated annually by the triple lock. State pension age is 66, rising to 67 between 2026 and 2028. See our WASPI guide for women affected by the 1950s state pension age changes.
Get Pension Advice
The 2026 pension landscape is the most complex it has ever been. Find FCA-authorised pension advisers via the Kaeltripton Financial Directory.
This guide is for general information. Pension and tax rules change frequently. Always seek advice from a qualified, FCA-authorised financial adviser.