State pension warning as ‘many pensioners’ cross HMRC threshold | Personal Finance | Finance
State pensioners could get a surprise tax bill (Image: Getty)
State pensioners may want to check if they will be hit by a new tax bill. Payments will soon be increasing again in April, thanks to the triple lock.
This policy ensures that payments go up in line with whichever proves to be highest of three measures: the rise in average earnings, the rate of inflation, or a minimum 2.5 per cent. The earnings measure was the highest of the three numbers last year, with payments to increase 4.8 per cent in April.
This pay increase will lift the full new state pension from the current £230.25 a week up to £241.30 a week, while the full basic state pension will go up from the current £176.45 a week to 184.90 a week. Jennifer Critchton, senior wealth planner at Killik & Co, warned that the pay boost could drag some claimants into paying more taxes.
She said: “From April this year, the full new state pension will rise to £241.30 per week (around £12,548 per year). This brings many pensioners above the personal allowance (£12,570) once any private pension or other income is taken into account.”
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The triple lock policy will mean that the full new state pension will definitely move above the personal allowance from April 2027. Labour ministers said previously that those whose only income is the state pension without additional amounts would not have to pay small amounts of income tax when their income moves above the personal allowance.
However, the Government has yet to set out exactly how this will work. Looking ahead to the April 2027 increase, Ms Critchton said: “Earnings growth once again looks set to be the driver of the triple lock for April 2027. With the personal allowance still frozen, this means that, from the 2027/28 tax year, the increase expected under the triple lock will take many pensioners over the tax-free threshold from state pension income alone.
“The continued freeze on income tax thresholds, adopted by both the current and previous Governments, is a subtle but increasingly significant form of fiscal drag, and its effects are beginning to be felt.”
She spoke about how pensioners can use the extra funds from the state pension increase this year. The financial planner said: “If the higher state pension payment isn’t immediately needed for regular expenses, using it to rebuild an (interest-earning) easy access cash buffer or saving into an ISA can help keep money flexible for later-life expenses such as home adaptations or care costs.”
As the triple lock continues to drive up the state pension bill for the Government, one question that keeps being raised is when ministers will have to change it. Ms Critchton said: “Over time, it’s likely the triple lock will be revisited because it’s simply too expensive to sustain.
“Its design can lead to sharp increases in pension spending during periods of volatility, particularly in years marked by spikes in inflation or earnings growth. A new system which better smooths over these outlier years (such as multi-year averages) or the removal of the 2.5% floor may be on the cards.”
Key policy changes coming up
One change that people planning for their retirement should note is that the state pension age is increasing from this April, rising from the current 66 in stages to reach 67 by April 2028. There is also legislation in place for this to increase again to 68 between 2044 and 2046.
A review of the state pension age published in 2023 recommended bringing forward the move to 68, but the then Conservative Government did not take up the idea. Labour announced in 2025 there would be another review of the state pension age, so further changes could be on the way.
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