The October 2026 Budget: what it means for your retirement

For retirement, five changes matter. The State Pension rises 3.9% to £250.70 a week in April 2027. For three years, anyone over State Pension age whose income is no more than the full new State Pension pays no income tax. Tax on savings interest outside an ISA rises to 24% at the basic rate from April 2027, but the planned cut to the cash ISA allowance is scrapped, so the whole £20,000 can still be cash. The triple lock is adjusted from 2030. Tax-free cash, the salary sacrifice rules and the 2027 inheritance tax changes for pensions stay as they were.

Written on Budget day, 28 October 2026, from the Budget and the first official guidance. Some details depend on the Finance Bill and HMRC guidance still to come; we will update this page when they are published.

John Healey’s first Budget as Chancellor was a quiet one for pensions after weeks of speculation about tax-free cash. Most of what changed for people near or in retirement is about the State Pension, the income tax on it, and savings held outside an ISA. This is what was announced, who it affects and what it means for a retirement plan.

The changes at a glance

The State Pension: 3.9% in April, and a different triple lock from 2030

The Budget confirmed that the State Pension rises by 3.9% in April 2027. That is the growth in average earnings over May to July 2026, the highest of the triple lock’s three measures this year. The full new State Pension becomes £250.70 a week, £13,036.40 a year, up about £489. If you are on the older basic State Pension, it rises by the same 3.9%.

The bigger news is for later years. From April 2030 the triple lock is adjusted. Each year the State Pension will still rise by at least 2.5% and at least inflation, but the third test changes: instead of matching that year’s earnings growth, it will rise by whatever keeps its value against average earnings where it stood in April 2029.

The difference shows up in a year when prices rise faster than wages. Under today’s triple lock, that year’s inflation rise is kept for good, and the next year’s earnings rise goes on top, so the State Pension creeps up against earnings over time. Under the adjusted rule, it still rises with inflation in that year, but then waits for earnings to catch up rather than taking a second boost. Over a long retirement it should keep pace with earnings, without the ratchet. The Office for Budget Responsibility expects the change to make no difference to the cost before 2031-32; the savings come later. It still has to become law, and the details could change.

The Pension Tax Allowance: no income tax on the State Pension alone

The Personal Allowance, the income you can have before paying income tax, is frozen at £12,570 until April 2031. In April 2027 the full new State Pension, at £13,036.40, overtakes it for the first time. Without a change, someone living on the State Pension alone would have started paying about £93 a year in income tax.

The new Pension Tax Allowance stops that, for the three tax years 2027/28, 2028/29 and 2029/30:

• Who: anyone over State Pension age whose total income is no more than the full new State Pension. Total income means all of it: the State Pension, any workplace or private pension, earnings, savings interest and rent.
• How much: it is worth the basic rate of tax on the gap between the full new State Pension and the Personal Allowance, about £93 in 2027/28. On an income up to the full new State Pension, that wipes out the tax.
• The taper: it is withdrawn by £1 for every £3 of income above the full new State Pension. The government’s figures for 2027/28: the full allowance on income up to £13,037, part of it up to £13,319, none above.
• Claiming: you do not need to. HMRC applies it from the information it already holds about your income and age.

Two examples for 2027/28. Margaret is 70 and lives on the full new State Pension, £13,036.40, and nothing else. Without the allowance she would pay about £93 of income tax; with it, she pays none. Tom is 72 with the full new State Pension and a small workplace pension of £150 a year, £13,186 in all. His allowance is cut by £50 (a third of the £150 over), leaving about £43, so he pays about £80 of tax rather than £123. Anyone with other taxable income of about £283 a year or more on top of the full new State Pension gets nothing from it.

Two things to know. It is temporary: it ends after 2029/30, and what happens then is not yet decided, so a plan that runs past April 2030 should expect tax on the State Pension again. And in the taper the tax rate is effectively over 53%: each extra £1 of income above the full new State Pension costs 20p of tax plus 33p of lost allowance. That only applies to a band of about £280 of income, but it is worth knowing if you are deciding whether to take a small pension or some interest in that range.

Savings: higher tax on interest, but the cash ISA is safe

The previous Budget had already raised the tax on savings interest by 2 percentage points from April 2027. This one adds 2 more. From 6 April 2027, interest outside an ISA above your allowances is taxed at:

The allowances that shelter interest are unchanged: the Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate) and, if your other income is low, the £5,000 starting rate for savings. The Chancellor said 88% of people will pay no more tax on their savings. Tax on income from property rises by the same further 2 points from April 2027. Tax on dividends does not change this time: it rose in April 2026 to 10.75% and 35.75%.

The good news for savers is that the cut to the cash ISA allowance is cancelled. From April 2027, under-65s would have been able to put only £12,000 of the £20,000 allowance into cash. That has been reversed before it started, so the whole £20,000 can still go into a cash ISA at any age. With interest taxed more heavily outside an ISA, using the allowance is worth more than it was.

What did not change

• Tax-free cash from pensions. Despite reports that the maximum might be cut to £100,000, it stays at £268,275, and 25% of a pension can still be taken tax-free up to that.
• Pensions and inheritance tax. As already legislated, most unused pensions count towards your estate from 6 April 2027. Our guide to pensions and inheritance tax from April 2027 covers what that means.
• Inheritance tax. No new changes. The nil-rate bands stay frozen to 2030/31, and the gift rules and the seven-year rule are as they were. Business and agricultural relief keep the £2.5 million cap that started in April 2026.
• Salary sacrifice. The cap already legislated stands: from April 2029, only the first £2,000 a year of pension contributions made by salary sacrifice is free of National Insurance.
• Income tax thresholds stay frozen until April 2031, and the headline rates on earnings and pensions do not change.
• The minimum pension age still rises from 55 to 57 on 6 April 2028.

Smaller changes worth knowing

• Pension death benefits. For payments made on or after 28 October 2026, tax-free death benefits no longer become taxable just because they are paid more than two years after the member died. Delays in sorting out an estate will no longer cost beneficiaries tax.
• Lifetime ISA. From 29 October 2026, taking money out of a Lifetime ISA to buy a home above the £450,000 limit costs 20% rather than 25%, so you lose the government bonus but none of your own savings. A First Time Buyer ISA will replace it for new savers from April 2029, with up to £4,000 a year, a 25% bonus on a first home up to £450,000 and no upper age limit. Existing Lifetime ISAs carry on.
• Household bills. A £100 payment towards energy bills this winter for homes in council tax bands A to D, and the cut in VAT on household electricity extended to July 2027. The National Minimum Wage and National Living Wage rise by 3.9%.

What to check in your plan

• If your income will be close to the full new State Pension after State Pension age, the allowance may take your income tax to nothing for 2027/28 to 2029/30. Remember it ends after that.
• If you hold cash outside an ISA, the tax on its interest rises from 6 April 2027. Moving savings into a cash or stocks and shares ISA before then, within the £20,000 allowance, shelters the interest from both increases.
• If your plan grows the State Pension faster than earnings, the triple lock from 2030 makes that less likely to hold. Running the plan at around 3%, and again at inflation only, shows how much depends on it.
• Check your State Pension forecast on GOV.UK. Your own entitlement can be more or less than the full rate, and the 3.9% rise applies to whatever you get.

Sources

• GOV.UK: Budget 2026, with the Budget document, speech and policy papers
• GOV.UK: Budget 2026 overview of tax legislation and rates
• MoneySavingExpert: State pensioners with incomes under £13,037 to pay no income tax
• Tax Policy Associates: Budget 2026, what it means
• MoneySavingExpert: cash ISA limit to stay at £20,000
• MoneySavingExpert: Lifetime ISA withdrawal fine cut for homes above £450,000
• Health & Protection: two-year rule on taxing death benefits ditched

Figures for 2027/28 are as announced on 28 October 2026. The Pension Tax Allowance and the triple lock change are to be legislated; the property income rates and the First Time Buyer ISA have details still to be confirmed.