Hundreds of thousands of British pensioners are facing an unexpected tax bill as the state pension is projected to surpass the tax-free personal allowance threshold within two years.
The Triple Lock Driving Pension Increases
According to analysis by Spencer Churchill Claims Advice, the full new state pension will increase by 4.8% from April 2026, pushing the weekly payment to approximately £241.30. This translates to an annual income of £12,548, comfortably exceeding the current personal allowance of £12,570.
The increase is driven by the government's triple lock mechanism, which guarantees state pension rises based on the highest of three measures: inflation, average earnings growth, or 2.5%. Revised wage growth figures that exceeded earlier projections have determined next year's pension rise.
The Looming Tax Threshold Breach
Experts warn that if current trends continue, the full state pension will exceed the personal allowance by April 2027. This significant milestone means retirees could be required to pay income tax solely on their state pension payments for the first time.
"While the difference may seem marginal, every pound matters when it comes to covering rising living costs," cautioned pension specialists at Spencer Churchill Claims Advice. The firm noted that "some pensioners (will be) paying income tax purely on their state pension, something the Government will find politically difficult to justify."
Political Dilemma and Future Reforms
The situation presents the government with a substantial political challenge. Spencer Churchill Claims Advice stated: "The Government faces a difficult balancing act. Removing the freeze on the personal allowance would cost billions at a time when fiscal headroom is already limited, yet scaling back the triple lock risks alienating older voters before the next election."
The pension experts concluded that reform may be unavoidable in the long run as the state pension continues its upward trajectory toward the tax threshold. It's important to note that these increases are not yet finalized and remain subject to confirmation.
The analysis also highlighted that recipients of the basic state pension will not receive the full triple lock increase on their entire payment. While the base payment rises according to the triple lock, additional elements such as the extra state pension will increase in line with inflation, meaning those components will rise by 3.8% next year.
