Chancellor Rachel Reeves has come under fire as experts warn that hundreds of thousands more pensioners will barely feel any impact from the annual triple lock rise due to controversial tax rules. The triple lock guarantees an increase to the state pension every year to match whichever is highest out of inflation, wage growth, or 2.5%. However, more over-65s will find themselves having to pay income tax this year because of frozen tax bands.
Triple Lock Increase Offset by Tax
Some commentators argue that this makes the triple lock increase almost worthless to certain retirees who will lose a similar amount in tax. The triple lock ensures payments rise each year to keep up with living standards, but it has also resulted in hundreds of thousands more over-65s passing the personal allowance threshold—the point at which someone starts paying income tax.
The issue has been caused by successive governments keeping tax bands frozen since 2021. Chancellor Rachel Reeves opted to keep them at the same level at last year's Budget. Ministers know this will result in more households being shifted into new bands as their incomes increase, bringing in more tax revenue. This is known as fiscal drag, while critics label it a stealth tax.
Growing Number of Pensioners Affected
While those who only receive the state pension do not currently have to pay, it only takes a modest private pension or a small amount of interest from savings to pass the £12,570 threshold. An extra 600,000 pensioners are expected to have to pay income tax in 2026/27 because of this policy.
Derence Lee, chief finance officer at Shepherds Friendly, said: "With the full new state pension rising to £11,973 from 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."
An Assistance for Seniors spokesperson added: "This is no longer a problem affecting only those with substantial pension pots. We are fast approaching a point where simply receiving the full state pension, alongside even a modest amount of savings interest, is enough to trigger a tax bill."
