Financial experts have cautioned that the recent increase to the State Pension under the Triple Lock is pushing growing numbers of pensioners towards an income tax liability. The Triple Lock policy guarantees the State Pension rises each year in line with earnings growth, the Consumer Price Index (CPI) inflation rate or 2.5 per cent – whichever is highest.
The full New State Pension is now worth £12,547 over the 2026/27 financial year. However, the uprating leaves just £36 before the Personal Allowance income threshold of £12,570 is breached, which would see more pensioners with any additional income facing tax bills in retirement.
While the annual increase has been broadly welcomed following years of soaring inflation, the ongoing freeze on tax thresholds until April 2031 means the gap between the State Pension and the tax-free limit is closing rapidly, reports the Daily Record.
Derence Lee, Chief Finance Officer at Shepherds Friendly, said: “With the full New State Pension rising to £12,547 in April, and Personal Allowance now frozen at £12,570 until 2031, more retirees are edging dangerously close to paying income tax on their State Pension.
“The Triple Lock has played a vital role in helping pensioners keep pace with the high inflation seen in recent years. However, if the tax-free allowance remains frozen, some of the recent State Pension increases could effectively be taken back through income tax. For pensioners who rely mainly on their State Pension to cover everyday essentials, even a small tax bill could make a noticeable difference to their finances.”
It is important to be aware that anyone whose sole income is the State Pension will not pay income tax. However, the full New State Pension is on track to exceed the Personal Allowance in the 2027/28 financial year.
State Pension Rates 2026/27
Full New State Pension
- Weekly: £241.30 (from £230.25)
- Four-weekly pay period: £965.20
- Annual amount: £12,547
Full Basic State Pension
- Weekly: £184.90 (from £176.45)
- Four-weekly pay period: £739.60
- Annual amount: £9,614
Other State Pension rates
- Category B (lower) Basic State Pension – spouse or civil Partner’s insurance: £110.75 (from £105.70)
- Category C or D – non-contributory: £110.75 (from £105.70)
The new payment rates will start on April 6.
The UK Government recently confirmed that new measures will be introduced by HM Revenue and Customs (HMRC) this year to ensure pensioners – whose sole income is the State Pension – will not be required to complete a Simple Self Assessment tax return should their payment push them beyond the Personal Allowance threshold of £12,570.
The issue is being driven by what is commonly referred to as ‘fiscal drag’, whereby individuals are drawn into paying tax not because rates have risen, but because thresholds have remained frozen while incomes continue to grow.
While the majority of retirees have additional income from private or workplace pensions, those depending primarily on the State Pension could still feel the pinch if even a modest portion becomes subject to taxation.
Lee said clearer guidance from the UK Government would help pensioners better understand what lies ahead.
“Clear guidance from the UK Government on pension taxation and savings would give retirees certainty and peace of mind, but until then, pensioners should check whether they’re eligible for Pension Credit, which can top up weekly income for those on lower earnings.
“Those still working part-time may wish to consider additional private pension contributions, while anyone approaching retirement should consider reviewing how ISAs, workplace pensions and diversified investments can help build a more resilient income stream.”
He added: “By preparing today, pensioners give themselves the best chance to ensure their income keeps pace with costs and maintain a sense of financial stability.”
With further State Pension rises anticipated, the strain caused by frozen tax thresholds looks set to remain a pressing concern for retirees managing their finances.
State Pension and tax
Guidance on GOV.UK states: “You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates.
Your total income could include:
- the State Pension you get – Basic or New State Pension
- Additional State Pension
- a private pension (workplace or personal) – you can take some of this tax-free
- earnings from employment or self-employment
- any taxable benefits you get
- any other income, such as money from investments, property or savings
Check if you have to pay tax on your pension
Before you can check, you will need to know:
- if you have a State Pension or a private pension
- how much State Pension and private pension income you will get this tax year (April 6 to April 5)
- the amount of any other taxable income you’ll get this tax year (for example, from employment or state benefits)
You cannot use this tool if you get:
- any foreign income
- Marriage Allowance
- Blind Person’s Allowance
Use this online tool at GOV.UK to check if you have to pay tax on your pension. The full guide to tax when you get a pension can be found on GOV.UK here.