New figures reveal that approximately 820,000 state pensioners will be required to pay income tax on their Department for Work and Pensions (DWP) payments by the 2027/28 tax year. This development comes as the state pension, boosted by the triple lock, now stands at £12,547.60 per year—just £23 below the personal tax-free allowance threshold of £12,570.
Triple Lock and Frozen Thresholds Create Tax Burden
Maike Currie, VP Personal Finance at PensionBee, highlighted the complexity of the situation: "The challenges over taxing the State Pension highlight just how complicated the interaction between the Triple Lock and frozen tax thresholds has become. Any changes need to be carefully designed so pensioners pay the right amount of tax without creating unnecessary complexity or confusion."
The triple lock mechanism ensures the state pension increases by the highest of inflation, average earnings growth, or 2.5%. However, with income tax thresholds frozen until 2028, more pensioners are being drawn into the tax net as their pensions rise.
Impact on Pensioners and Younger Generations
Currie also addressed the broader implications: "It's important not to present the Triple Lock divisively, as a choice between supporting pensioners and supporting younger people. Rising youth unemployment and the growing number of young people who are not in education, employment or training are complex, structural challenges that require targeted solutions. Pensioners also need protection against inflation, particularly those who rely heavily on the State Pension and have limited private pension savings, so any reforms to the Triple Lock should be carefully considered and accompanied by a clear, credible alternative that gives people confidence to plan for the future."
The Office for Budget Responsibility previously estimated that by 2027/28, 820,000 pensioners would become taxpayers solely due to their state pension income, a figure that has now been confirmed.
Call for Private Pension Planning
Currie added: "The ongoing Triple Lock debate is a reminder that pension policy can and does change. We've seen reforms to the State Pension age, National Insurance and tax allowances over the years. While the Triple Lock remains in place today, no government can guarantee what the system will look like decades from now. The State Pension provides an important foundation, but it shouldn't be the only pillar of retirement planning. Building up a private pension gives people greater choice, flexibility and financial resilience, regardless of how future governments choose to reform the system."
As the state pension continues to rise, pensioners are encouraged to consider additional savings to mitigate the impact of potential tax liabilities and policy changes.
