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Craig Muir
Senior Pensions Technical Manager

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Budget 2026: what the pension and ISA changes mean for employers

Published  28 October 2026
   3 min read

A practical guide to the new Pension Tax Allowance, the Cash ISA reversal, Lifetime ISA reform and the proposed Starter ISA.

Budget 2026 contains a notable package of changes to pensions and tax advantaged savings. Although these measures are aimed primarily at individuals, they matter to employers too. They will shape the questions employees ask, the choices they make between short and long term saving, and the support they expect through workplace financial wellbeing programmes.

Five announcements stand out: a new Pension Tax Allowance, the decision not to proceed with the planned reduction in the Cash ISA limit from April 2027, higher tax rates for savings and property income, removal of the Lifetime ISA withdrawal penalty, and a commitment to develop a Starter ISA for first time investors. Together, they point towards a broader policy objective of protecting lower income pensioners while encouraging more people to build a savings and investment habit. 

 

A new Pension Tax Allowance

Budget 2026 confirmed a new Pension Tax Allowance from 6 April 2027 for people above State Pension age, or who reach it during the tax year. Eligibility is based on total income, not its source, so employees can qualify even if they also receive earnings, a private pension, savings interest, dividends or property income.

In 2027/28, the full new State Pension will be £13,036.40, compared with the £12,570 Personal Allowance. Individuals with total income between £12,570 and £13,037 will receive the full Pension Tax Allowance, worth up to £94. The allowance then reduces by £1 for every £3 of income above the full new State Pension. Some relief remains up to total income of £13,319, after which no Pension Tax Allowance is available.

Employee communications can make it clear that workplace earnings or pension income do not automatically prevent entitlement, although they count towards the income limits and taper. Employers can support staff by signposting State Pension forecasts, MoneyHelper, Pension Wise where applicable and regulated financial advice. The allowance will rise with the full new State Pension in 2028/29 and 2029/30. 

 

The Cash ISA limit will remain at £20,000

The Budget brought welcome clarity for savers, with Chancellor John Healey announcing that the planned restriction limiting cash ISA subscriptions to £12,000 a year for people under 65 will be removed. The reversal means employees will continue to have the option of using the full £20,000 annual ISA allowance for cash, rather than being required to direct any amount above £12,000 into other types of ISA.

For employers, this is positive news because financial wellbeing is not only about encouraging investment. It’s also about helping people build confidence, resilience and good financial habits. Cash savings can play an important role in meeting emergency costs, preparing for short term expenditure and reducing reliance on expensive borrowing.

That doesn’t diminish the importance of long-term investing or workplace pension saving. For many employees, investing will remain essential to achieving objectives that are years or decades away. Employers can continue to share information to help employees understand the value of pension contributions, employer matching, tax relief and long term investments.

 

A further increase in savings and property income tax rates from April 2027

Budget 2026 announced a further 2 percentage point increase in the income tax rates applying to savings income from 6 April 2027. This is in addition to the 2 percentage point increase announced in Budget 2025. The savings basic rate will therefore be 24%, the higher rate 44% and the additional rate 49% for the 2027/28 tax year. These rates will apply across the UK. The starting rate for savings and the Personal Savings Allowance remain unchanged, so not every employee receiving bank or building society interest will pay more tax.

Property income tax rates will also be increased by a further 2 percentage points from 6 April 2027, on top of the separate rates announced at Budget 2025. The property basic, higher and additional rates will therefore be 24%, 44% and 49% respectively for 2027/28. 

For employers, the further increases may be relevant to employees who hold substantial cash savings outside tax-free accounts, receive rental income or are approaching retirement with income from several sources. Workplace communications can help explain that these changes affect income from assets rather than salary, and that the additional tax will depend on the employee’s tax band, available allowances and wider circumstances.

The key point is that Budget 2026 does not simply restate the rates announced at Budget 2025. It increases them by a further 2 percentage points from the same commencement date, 6 April 2027. 

 

Launch of a new First Time Buyer ISA

The government will introduce a new FTB ISA from April 2029. The product will replace the Lifetime ISA (LISA) for new savers and provide a 25% government bonus, paid on withdrawal, towards the purchase of a first home worth up to £450,000. The maximum value of the bonus will be capped at £20,000. Existing LISA holders will be able to continue contributing to and using their accounts under the current rules. 

In addition, the government will reduce the withdrawal charge for existing LISA holders who use their savings to purchase a first home above the £450,000 property price cap. From midnight 29 October 2026 the withdrawal charge for purchases of properties above the LISA property price cap will be reduced to 20%. However, the charge for unauthorised withdrawals will remain at 25%.

 

Starter ISA launch

The government will work with industry to explore a new ISA incentive for people investing in a stocks and shares ISA for the first time. The detailed design will be developed with industry.

 

Steps employers can take to support employees

  • Point employees towards financial wellbeing content and support. This can help them understand how to reduce bills, and offer guidance on building their savings or where to start when buying their first home
  • Prepare managers and support teams. Employees may ask payroll, HR or reward teams how the changes affect them, even where the measure sits outside payroll.
  • Use the workplace as an education channel. Explain the different roles of emergency savings, ISAs and pensions without recommending a particular product.
  • Encourage employees to speak to an adviser. Tax and product choices depend on individual circumstances, so signpost employees to appropriate guidance or regulated financial advice.

Budget 2026 doesn’t remove the need for employees to make choices between accessible savings, investment and retirement provision. Instead, it changes the framework around those choices. Employers can add value by helping people understand the purpose of each option, correcting outdated information and making timely, impartial support available. 

 

Sources 

HM Treasury, Budget 2026, 28 October 2026. 

HM Treasury, Pension Tax Allowance Explainer, 28 October 2026.