Jessica O'ConnorUK pension schemes ended 2025 on a strong footing, but significant reforms are set to reshape the system from 2026 onwards, according to pensions provider Penfold.
Defined benefit (DB) schemes are holding an estimated aggregate surplus of £223bn, with assets exceeding long-term liabilities by around 24% to 25%.
Defined contribution (DC) pensions have also continued to grow, with assets under management reaching £650bn – a 40% increase since 2019.
Chris Eastwood (pictured), CEO of Penfold, said recent policy decisions have brought short-term stability but signalled longer-term change.
He added:“November’s Budget brought welcome stability for pension savers. The National Insurance cap on salary sacrifice from April 2029 will impact higher earners more than typical savers.
“Yet, pension contributions remain one of the most tax-efficient ways to build long-term security and salary sacrifice will continue to be a valuable tool for both employers and employees.
“The major shift is the government’s decision to revisit the State Pension. A new Pensions Commission and another age review show that the State Pension system will need to evolve to stay fair and sustainable.”
Eastwood continued: “For anyone building their future today, the review underlines the importance of growing a strong private pension alongside whatever the State Pension becomes in the decades ahead.
“Savers will be reassured by the fact that core pension rules remain unchanged for now and that consistent contributions still go the furthest in shaping a comfortable retirement.”
Looking ahead, Eastwood said 2026 will be a pivotal year as employers, savers and providers prepare for reforms already set in motion.
Salary sacrifice remains a key incentive, but communication will become more important ahead of a National Insurance relief cap coming into force from April 2029.
“Salary sacrifice will still be one of the strongest employer/employee value drivers in 2026, but the budget has confirmed a cap on NI relief from April 2029, limiting NI-free sacrifice to the first £2,000/year,” Eastwood said.
“That makes 2026 a key year for education and for employers to lock in good habits while the regime is still fully effective.
“This year is the year for businesses to double down on salary sacrifice and help employees understand the upside before rules tighten later this decade.”
Pensions dashboards are also expected to move pensions into the mainstream, with all schemes and providers required to connect by 31st October 2026.
Further ahead, automatic consolidation of small pension pots and a tougher value-for-money framework are expected to reshape competition, while government plans for larger DC “megafunds” and increased investment in UK growth assets will keep pensions central to the economic agenda.
Eastwood also highlighted estate planning as a growing consideration, with unused pensions set to fall within inheritance tax rules from April 2027.
He added: “Pensions are increasingly for-life wealth planning, not a set-and-forget pot and therefore engagement and guidance matter more.”
He concluded that while UK pensions remain resilient, savers should act now to prepare for a decade of change: “At present, savers should make sure to keep up to date with changes, consistently contribute and make the most of present incentives, as 2026 will mark the beginning of a decade of change where pension choices will really matter.”
