New Year Brings Costly Changes to Pension Systems and Finances for Seniors and Entrepreneurs

From January 1, 2026, the biggest funeral benefit increase in fifteen years^[1] came into effect. The benefit paid by ZUS rose from 4,000 PLN to 7,000 PLN, an increase of 3,000 PLN (a 75% rise). This is the first change in the amount since 2011. The benefit is available to family members as well as individuals and institutions that actually covered the burial costs, including funeral homes. The amendment to the law on pensions and disability benefits from the Social Insurance Fund, announced on June 3, 2025, besides raising the amount, introduced a simplified payment procedure.

Higher Funeral Benefit and Faster Payment

A key technical change is the shortening of the payment processing time. If one person bore the full funeral costs, ZUS pays the benefit practically automatically^[49], without issuing a formal decision, and the payment deadline shortens from 30 to 14 days from the application submission. When several people share the expenses, the office distributes up to 7,000 PLN proportionally to the costs incurred. The amount due depends on the date of death: for deaths before January 1, 2026, the old amount of 4,000 PLN applies, and from January 1 onward – the new, higher amount. Families must primarily present a death certificate copy, funeral invoices, and the applicant’s ID.

Pension Indexation and Tax Trap

The legislator linked the new benefit to inflation. From March 1, 2026, the benefit will be subject to annual indexation^[3], but only if the annual inflation exceeds 5%. With 2025 inflation below this threshold, the first indexation will likely be postponed to 2027. The increased benefit aims to reflect the real burial costs in Poland, which are currently estimated at around 10,000–15,000 PLN. Faster payment and a higher amount should ease the financial pressure on families during the initial weeks of mourning.

At the same time, the government has budgeted for a 4.88% pension and disability benefit indexation^[5] for 2026, effective from March 1, 2026. The minimum pension will rise from 1,878.91 PLN to 1,970.60 PLN gross, an increase of 91.69 PLN per month. A pension of 2,500 PLN gross will increase by about 122 PLN gross, and a 3,000 PLN gross benefit by about 146 PLN, although part of the increase will effectively be absorbed by income tax. The indexation will also cover additional benefits: the thirteenth pension is expected to be about 1,970 PLN, while the fourteenth remains income-threshold-dependent with a “złotówka za złotówkę” mechanism above a certain limit.

UK Reform of Small Pension Pots

The indexation mechanism stems from the law and is based^[6] on average annual inflation and wage growth in the economy. From a tax perspective, however, the system remains unfavorable for some seniors. The tax-free amount for pensioners, roughly corresponding to about 2,500 PLN gross monthly, has been frozen for years. This means that those receiving higher benefits will pay PIT tax on nearly the entire indexation amount. In practice, some seniors will see a bank account increase lower than the nominal 4.88%, and some beneficiaries may enter a higher tax bracket. Meanwhile, ZUS must secure additional funds in the budget, and higher pensions may translate into increased local consumption, especially in smaller towns.

Against the backdrop of Polish changes, broad pension reforms are also underway in the United Kingdom. The British government is advancing the Pension Schemes Bill^[27], expected to come into effect around mid-2026. Its main goal is to streamline so-called small pension pots accumulated over the years in various employer schemes. Under the automatic enrollment system, employees often change employers and end up with multiple small pension accounts, where fees eat up a significant part of the potential gains. The reform aims for automatic consolidation of these “small pots” into bigger, more efficient accounts. This will force pension service providers to compete for the role of main “homes for pots” and simplify supervision over retirement savings.

France Halts Retirement Age Increase

Planned changes in the UK also include gradually raising the retirement age^[28] and modifying tax rules regarding inheritance of pension funds. From 2027, a new inheritance tax system will come into force, encouraging some wealthier individuals to reconsider how long to keep savings in pension products. Simultaneously, incentives will promote longer workforce participation among seniors, akin to the German concept of tax reliefs for working pensioners. People holding UK pension accounts should in the coming months check the number and size of their “small pots,” the fee costs, and whether they benefit from salary sacrifice solutions increasing savings efficiency before 2029.

In France, there has been a dramatic political reversal on retirement age. On December 16, 2025, The National Assembly voted to suspend the 2023 reform^[30], which raised the retirement age from 62 to 64. A total of 247 deputies supported the compromise, while 232 opposed it. The suspension will last until January 2028, i.e., until after the 2027 presidential elections. New Prime Minister Sébastien Lecornu needed votes from socialists and other leftist groups to pass the 2026 budget, and temporarily halting the reform became the price for this support. Politically, this is a setback for President Emmanuel Macron, for whom the retirement age change was a key project of his second term.

Dutch Revolution and the Bond Market

The suspension of the French reform will cost the budget about 2.2 billion euros: roughly 400 million euros in 2026 and 1.8 billion euros in 2027. It is estimated that about 3.5 million people from the 1964 birth cohort and neighboring years will gain the right to early retirement. For example, someone born in 1964 could end their working career as early as October 2026, at age 62 years and 9 months, instead of waiting until January 2027. The suspension covers both the retirement age and the required contribution period of 43 years (172 quarters). The suspension is set to last until January 2028^[31] After 2028, the new government will have to face again the problem of a growing number of retirees and a shrinking workforce, foreshadowing another round of social disputes.

An even bigger scale reform is underway in the Netherlands’ pension system. From January 1, 2026, Dutch pension funds began transferring around 550 billion euros of assets^[34] from defined benefit (DB) schemes to defined contribution (DC) schemes, according to the Future of Pensions Act. The change in pension plan design requires a complete overhaul of investment portfolios. For younger participants, funds reduce protection against interest rate changes, while for older ones they increase it. In practice, this means massive selling of long-term government bonds with maturities above 30 years and shifting part of the capital toward shorter-term papers with 7–15 year maturities.

Global Context and Practical Insights

Dutch funds such as ABP, PFZW, and PMT Dutch funds rank among the largest institutional investors in Europe^[35]. Their decisions influence bond valuations across the eurozone as well as yields on government securities in countries like Germany and France. The first weeks of January 2026 have already brought a rise in yields on thirty-year bonds, a direct result of selling pressure. In 2027, a further transfer of about 900 billion euros to the DC system is planned, which may sustain higher volatility in the debt market. For individual investors, this means opportunities to buy European long-term bonds with more attractive yields but also greater price fluctuation risks.

Global changes in pension systems coincide with expected interest rate cuts in major economies. In the USA, some Federal Reserve leadership members suggest over 100 basis points of cuts^[23] will be necessary in 2026 to ease economic slowdown and rising unemployment. In Poland, analysts expect NBP to lower rates^[24] by a total of 0.5–0.75 percentage points over the year. For indebted households, this may lower mortgage installments by hundreds of zlotys monthly, while savers will face lower deposit interest rates and a need to seek higher returns in bond markets or investment funds.

The year 2026 appears as a transition period both for Polish consumers^[52] and participants in foreign pension systems. In Poland, costs rise for earners, especially sole proprietors, who face a 37% increase in health insurance contributions, and for pensioners with higher benefits, who will pay tax on part of the indexation. At the same time, borrowers may benefit from rate cuts. Internationally, there is a shift from defined benefit (DB) systems guaranteeing pension amounts toward defined contribution (DC) systems based on contribution size, amid lack of political consensus on retirement age, as illustrated by France. Polish seniors, entrepreneurs, and investors should closely monitor NBP decisions^[50], tax changes, bond market trends, and keep up-to-date on their pension entitlements and insurance coverage.