UK pension schemes enter 2026 in a robust position with strong funding levels, but the year ahead is expected to mark the start of significant structural change for the system, Penfold has stated.

The digital pensions provider noted that defined benefit (DB) pension schemes were collectively running an estimated £223bn surplus, with assets exceeding long-term liabilities by around 24-25 per cent.

Meanwhile, defined contribution (DC) assets under management have continued to grow, reaching around £650bn - an increase of roughly 40 per cent since 2019.

With this in mind, Penfold CEO, Chris Eastwood, said a strong end to 2025 provided a stable platform for savers.

However, he warned that a series of policy developments will reshape the pensions landscape over the coming years.

“The major shift is the government’s decision to revisit the state pension,” stated Eastwood.

“A new Pensions Commission and another age review show that the state pension system will need to evolve to stay fair and sustainable.

“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.”

Penfold reiterated that 2026 will also be a pivotal year as schemes, employers, and savers begin to prepare for reforms that will take effect later in the decade.

It said that salary sacrifice was expected to remain a key feature of workplace pensions, despite the planned cap on National Insurance (NI) relief from April 2029, which will limit NI-free sacrifice to the first £2,000 a year.

“Salary sacrifice will still be one of the strongest employer and employee value drivers in 2026,” Eastwood argued.

“That makes 2026 a key year for education and for employers to lock in good habits while the regime is still fully effective.”

Meanwhile, pensions dashboards were also set to move pensions closer to mainstream consumer engagement, with all schemes and providers required to connect to the dashboards ecosystem by 31 October 2026.

“As consumer testing and awareness ramp up, we expect more people to discover lost pots, compare providers and consolidate,” Eastwood explained, adding that dashboards will make pensions feel like a "modern financial product", and people will expect to see and manage their pension as easily as banking.

At the same time, automatic small-pot consolidation and the introduction of a tougher value-for-money (VfM) framework were expected to intensify competition among providers.

Penfold noted that reforms under the Pension Schemes Bill were moving towards the automatic consolidation of small pots - initially those worth £1,000 or less - alongside increased pressure on underperforming schemes to improve or exit the market.

“This won’t fully bite until later in the decade, but 2026 is when providers start fighting to be the destination pot,” Eastwood stressed.

“The market will shift from who is cheapest to who delivers the best lifetime outcome and experience.”

Penfold also pointed to continued policy momentum behind DC consolidation into larger “megafunds” and a push towards greater investment in UK growth assets, including private credit, infrastructure and unlisted equity.

“Scale should mean better net returns for savers and more long-term investment in the real economy if done right,” Eastwood said, adding that these shifts are likely to attract increasing public and media scrutiny around risk and reward.

Finally, the firm said pensions were becoming more firmly embedded in estate and later-life planning, ahead of planned changes to inheritance tax treatment.

From April 2027, unused pensions and death benefits are due to be included in estates for inheritance tax purposes, with legislation expected in the Finance Bill 2025-26.

“Pensions are increasingly for-life wealth planning, not a set-and-forget pot,” Eastwood stated.

Concluding, he warned that while UK pensions had shown resilience and strong funding, 2026 will mark the beginning of a decade of transformation.

“At present, savers should make sure to keep up to date with changes, consistently contribute and make the most of current incentives," Eastwood said.

“The choices made over the next few years will really matter as the system becomes more modern, transparent and outcomes-focused.”

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