The figures needed to calculate next April’s State pension increase are now in place, and they point to a growing issue that’s likely to be postponed until the 2026 Budget.
Source: DWP, HMR
How State Pension Increases Are Set
The annual rise in both the old and new State pensions is determined by the triple lock, which guarantees an increase based on the highest of:
- Average earnings growth (May–July of the previous year),
- Consumer Price Index (CPI) inflation (September of the previous year), or
- 2.5% minimum increase.
This year, the earnings growth figure, 4.7% was published in mid-September. Unless inflation unexpectedly jumps by 0.9% between August and September, the 4.7% figure will set the increase.
Projected Pension Increases
| Pension | 2025/26 £ a week |
2026/27 £ a week |
Increase £ a week |
Increase £ a year |
| Old State
|
176.45 | 184.75 | 8.30 | 431.60 |
| New State
|
230.25 | 241.10 | 10.85 | 564.20 |
From April 2026, the new State pension will be worth £12,537 per year, just below the income tax personal allowance, which remains frozen at £12,570. With the triple lock guaranteeing at least a 2.5% annual increase, the State pension will exceed the personal allowance by April 2027, triggering a small income tax liability for many pensioners.
Why This Matters
While many pensioners already pay tax due to additional State entitlements (like the State Second Pension), this will mark the first time the new State pension alone crosses the personal allowance threshold. Politically, this could be sensitive, especially following recent debates around the Winter Fuel Payment.
Once the State pension overtakes the personal allowance, it’s unlikely to reverse unless the allowance is increased faster than inflation, something not currently planned until 2028/29.
Practical Implications
This shift raises operational challenges for HMRC, since the State pension is paid without PAYE tax deductions. Will HMRC begin issuing simple assessments to collect small amounts of tax from pensioners who receive no other income?
And for those planning retirement, it’s worth noting: once your State pension exceeds the personal allowance, any private pension income will be fully taxable.
Important Notes
- Tax treatment depends on individual circumstances and may change.
- The Financial Conduct Authority does not regulate tax advice—seek guidance from a qualified adviser.
31st October 2025
