More Retirees to Face Income Tax Charge as Treasury Confirms 4.8% Triple Lock Increase

The Treasury Confirms State Pension Increase for 2026-27

The Treasury has announced a significant increase in the state pension, confirming that it will rise by 4.8% for the upcoming financial year starting April 2026/27. This increase is set to bring the full new state pension to £12,547 annually, just under the frozen personal allowance of £12,570.

According to the Triple Lock mechanism, which takes into account increases in earnings, inflation, and average wages, this 4.8% rise will be applied to the state pension. The increase is designed to keep pace with economic growth and ensure that retirees receive a fair share of the country’s rising wealth.

Implications for Retirees

The confirmation from the Treasury highlights the potential implications this increase could have on pensioners in the coming years. As a result, even those just receiving the full state pension are expected to face tax demands from HMRC starting from 2027/28.

Income Tax Thresholds and Pensioner Impact

A key factor is the freezing of income tax thresholds, which has had significant implications for retirees. Analysis by the Liberal Democrats reveals that this freeze will have cost pensioners £41.3 billion by the end of the decade since it was first introduced in 2022/23.

According to the analysis, a typical pensioner affected by these freezes will be nearly £800 worse off annually by 2029/30, with income tax hikes worth £7.4 billion annually by the end of the decade. This represents more than a twelve-fold increase from £590 million in 2022/23.

Speculations and Concerns

There has been speculation that Rachel Reeves, the Minister for Social Security, may extend these threshold freezes beyond their current end date of April 2028. This decision could have far-reaching consequences for pensioners who are already facing financial hardships due to cost-of-living pressures.

Perspective from Industry Experts

David Brooks, head of policy at independent pensions consultancy Brotone, expressed concerns about the long-term viability of the Triple Lock given its accelerating costs. He commented: “Confirmation that the state pension will increase by 4.8% takes the annual benefit right up to the brink of the frozen personal allowance threshold and will drag more retirees into paying income tax next year.”

He added, “The outsized increase to the state pension will once more raise questions around the long-term viability of the Triple Lock given the accelerating cost to the Exchequer. With the State Pension Age review ongoing, it will be interesting to see if it makes any proposals beyond raising the age of receipt either higher or faster.”

Steven Cameron, Pensions Director at Aegon, echoed these concerns: “As Budget week kicks off, state pensioners have received welcome confirmation that their state pension will increase in line with the triple lock next April.

While this was a Manifesto Commitment, there were real concerns that the Chancellor might have reneged on this, instead focusing on ‘working people.'”

He highlighted potential issues for future years: “Under the triple lock, the full state pension will increase by a minimum of 2.5% in future years, meaning in 2027/28 it will be at least £12,861. This is above the personal allowance of £12,570, which is already frozen until April 2028, with speculation of an extended freeze until 2030.” Cameron concluded that this could create anxiety for many vulnerable pensioners and lead to significant administrative costs for HMRC.

The state pension increase and the potential extension of tax threshold freezes highlight the complex interplay between government policies and the financial well-being of retirees. As we approach winter, with cost-of-living pressures still biting, these changes will undoubtedly have a profound impact on the lives of millions of pensioners in the UK.