Chancellor Rachel Reeves is preparing to announce a significant financial uplift for millions of state pensioners across the UK. The confirmation of the new pension rates is scheduled for the autumn Budget on November 26.
The Triple Lock in Action
The increase is a direct result of the government's triple lock policy, a mechanism that guarantees the state pension rises each year by the highest of three figures: average earnings growth, inflation, or 2.5%. Based on the latest wage growth data, the full new state pension for the 2026/27 tax year is set to increase by £575 annually.
This will take the yearly payment for approximately five million people who retired after 2016 from its current level to £12,548. Those on the older basic state pension, which is around £3,000 lower per year, will also see an increase and typically receive additional top-up payments.
An Unintended Tax Consequence
While the rise is welcome news for pensioners facing rising living costs, it brings a growing financial concern. The steady increase in the state pension, driven by the triple lock, is pushing more retirees into the income tax bracket.
This is because the personal allowance—the amount you can earn before paying income tax—has been frozen since 2021. As pensions continue to climb, they are on a collision course with this frozen threshold.
A spokesperson for Spencer Churchill Claims Advice commented on the situation, stating: "Pensioners can expect a slightly bigger uplift next year than initially predicted. While the difference may seem marginal, every pound matters when it comes to covering rising living costs."
The Looming Tax Threshold Cliff Edge
Experts are now warning of a pivotal moment on the horizon. The advisory firm highlighted: "If the triple lock remains in place, it is highly likely that by April 2027 the full state pension will actually surpass the personal allowance threshold. That would mean some pensioners paying income tax purely on their state pension, something the Government will find politically difficult to justify."
This potential scenario, where a pensioner's entire state pension becomes taxable, presents a significant political and fiscal challenge for the government. All eyes will be on Chancellor Rachel Reeves as she delivers the autumn Budget, setting out not only this pension boost but also the state of the nation's finances.
