The triple lock stipulates that State Pension payouts must rise in line with one of three metrics
A full new State Pension is currently worth £11,973(Image: pixelfit via Getty Images)
Pensioners may be obliged to pay Income Tax in the future whatever additional income they have, reports suggest. This is mainly due to modifications in the so-called triple lock system, which boosts the sum received by all State Pension recipients.
Every year, the Government has pledged to increase its pension payouts, thanks to the financial mechanism known as the triple lock. Despite debates over its hefty cost to the state, it remains in place for the foreseeable future, having been enshrined in a Labour manifesto pledge.
The tripe lock says State Pension payouts must rise in line with one of three things: wage growth, inflation, or a flat 2.5 percent, whichever is highest, every April. Nonetheless, Steve Webb, a partner at pensions firm LCP, has suggested that the State Pension is set to exceed the Personal Allowance Income Tax threshold from April 2027.
The current Income Tax Personal Allowance threshold stands at £12,570(Image: Andrzej Rostek via Getty Images)
This shift is anticipated to come into effect on April 6, marking the start of the new tax year. Now the Express reports that HMRC may still tax part of their State Pension, even if a pensioner with no other income receives the benefit.
Currently, the full new State Pension is worth £11,973 annually. This is generally received by those who have a complete National Insurance record of qualifying years (typically around 35 years).
Meanwhile, the current Income Tax Personal Allowance threshold stands at £12,570. So, State Pensioners with no other income will just scrape under the Income Tax threshold in 2025-2026 by £597.
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Pensioners, while already subject to Income Tax, typically require an income beyond the State Pension to surpass the tax-free limit. Currently, those solely dependent on State Pension payments are not taxed on them – but this could alter in the future.
Steve Webb told the Express: “This is because the triple lock formula provides a floor of 2.5% increases, meaning the rate will rise at least £236 in April 2026 and £241.90 in April 2027. The April 2027 rate is £12,578 per year, just above the £12,570 tax threshold.
“This could mean hundreds of thousands of pensioners are taxed on just £8 per year, with a tax bill of £1.60. If tax-free personal allowance then rises by CPI but the State Pension rises by more, then this situation will continue indefinitely.
The tripe lock stipulates that State Pension payouts must rise in line with one of three metrics(Image: PeopleImages via Getty Images)
“A combination of an increasing State Pension and frozen tax thresholds means we will soon be in the nonsensical situation where the new State Pension will be just a few pounds above the income tax threshold. This means that people whose only income is the standard new State Pension will be dragged into income tax. Long gone are the days when retirement meant no longer having to deal with the tax office.”
Even though the tax would be incredibly low – as little as £8 – it still means being taxed by HMRC, and the amount will escalate each year unless the Government adjusts the thresholds.
A potential solution could be to elevate the Personal Allowance threshold, which has remained the same for years. However, Labour has pledged to keep tax thresholds frozen until 2028 – which it may need to reassess sooner if it wants to avoid headlines about taxing all pensioners.
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