Hundreds of thousands of UK pensioners are being alerted to a looming financial pitfall that could see them paying income tax for the first time, despite a significant increase in their State Pension.
The Triple Lock Boost and the Frozen Threshold
From April 2026, the State Pension will increase by 4.8 per cent, a rise dictated by the government's 'triple lock' policy. This mechanism selects the highest of three figures: average earnings growth, inflation (which was 3.8 per cent), or 2.5 per cent. The full new State Pension will consequently reach £241.30 per week.
However, this welcome boost is set against a backdrop of a tax threshold that has remained static. The personal tax allowance, the amount you can earn before paying income tax, is frozen at £12,570 until at least 2028. This combination is creating what financial experts are labelling a 'stealth tax trap'.
Why Retirees Could Face Unexpected Tax Bills
Karen Barrett, founder of the UK's leading financial advice platform Unbiased, has issued a stark warning. She explains that as the State Pension rises to combat the cost of living, it consumes an ever-greater portion of an individual's tax-free allowance.
"For millions of retirees, the latest increase in the state pension is a double-edged sword," says Barrett. "While the 'triple lock' is doing its job by protecting the value of pensions against inflation, the government’s decision to keep the personal tax allowance frozen is creating a 'stealth tax' trap."
The critical issue arises for those with additional income. For many pensioners, even a modest private pension pot or a small amount of earnings from part-time work could now tip their total annual income over the frozen £12,570 threshold. This scenario would result in an unexpected income tax bill, potentially affecting hundreds of thousands who have never paid tax in retirement before.
Seeking Professional Financial Guidance
The situation underscores the importance of proactive financial planning for those in or approaching retirement. With the changes coming into effect from early April 2026, understanding your total income position is crucial.
Barrett and other advisers strongly recommend that anyone uncertain about how these changes will affect them should seek professional guidance. "If you're unsure, seek help from a professional financial adviser who can help clarify your position, reduce uncertainty, and plan with greater confidence," she advises.
It is important to note that while the new State Pension and basic pension will rise by 4.8 per cent, some protected or additional pension payments will increase in line with the Consumer Prices Index (CPI) measure of inflation.
