The Chancellor confirmed a 4.8% rise in the State Pension from April 2026 – lifting the full new State Pension to £12,548
By April 2027, anyone receiving the full State Pension will cross the income tax threshold(Image: andresr via Getty Images)
Pensioners are bracing for a hidden tax squeeze following the Chancellor’s confirmation of a 4.8% increase in the State Pension from April next year. The rise, prompted by the government’s “triple lock,” policy, will push the full new State Pension to £12,548 annually – just £22 shy of the current personal allowance, leading many retirees to pay income tax for the first time.
Experts have cautioned that the freeze on income tax thresholds until 2031 will allow this stealth tax to further erode pensioners’ incomes. By April 2027, anyone receiving the full State Pension will surpass the income tax threshold, making them liable for tax on money they currently receive tax-free.
John Chew, Technical Specialist at Canada Life, said: “The triple lock will trigger a 4.8% rise in the State Pension from April 2026 to £12,548, meaning pensioners will be just £22 away from the income tax cliff edge. Those relying on additional income such as private pensions or dividends will see their tax bills rise even further.”
Pensioners are bracing for a hidden tax squeeze(Image: fizkes via Getty Images)
Current HMRC data reveals that approximately 8.5 million pensioners already pay income tax. Analysts warn this number will rise – possibly by hundreds of thousands and potentially up to several million – as the full State Pension rise pushes more pensioners above the personal‐allowance threshold.
The Budget has confirmed that Brits receiving the full new State Pension will get £241.30 each week, whilst those on the full basic State Pension will receive £184.90 weekly. Nevertheless, not every component of the pension will increase at the complete triple lock rate: aspects including the additional State Pension will rise only in line with inflation, which stood at 3.8%.
Helen Morrissey, Head of Retirement Analysis at Hargreaves Lansdown, said: “The freeze on income tax thresholds means it is highly likely that the full new State Pension will breach the threshold for basic rate tax in 2027.
“For those solely reliant on it, this may come as an unexpected shock. The government has said it is looking at ways to ease the administrative burden for retirees whose only income is the State Pension, so they may not have to pay tax via simple assessment.”
This financial pressure arrives whilst pensioners are already grappling with increasing living expenses. Beyond the stealth tax, dividend tax is scheduled to increase by 2% from next April, affecting retired people who top up their income through investments.
Lucie Spencer, Partner in Financial Planning at wealth management firm Evelyn Partners, highlighted that, at present, just one in three (36%, or 4.7million) pensioners receive the full new state pension. She said: “This means that millions of pensioners will not be receiving the estimated full new SP payout of about £12,540 in 2026/27 which is often portrayed as a headline rate. Generally speaking the older you are the more likely it is your state pension will be less than this, and sometimes substantially so.”
She added: “The personal allowance freeze at £12,570 – which was also extended to 2029/30 today – does mean more state pensions will be taxed and that will accelerate in 2027/28 and subsequent years. You won’t find many pensioners complaining about triple lock increases because of this, although plenty would argue that the personal allowance should be raised to remove the anomaly.”
She cautioned: “What concerns most people is how it will be taxed – at source or will state pensioners have to tackle the quite daunting self-assessment process? Currently the state pension will always be paid gross.
“If the state pension is your only income and exceeds the Personal Allowance, then HMRC will usually issue a Simple Assessment after the tax year ends, telling you how much tax you owe and how to pay it. If you have other income not taxed via PAYE (e.g., rental income, or from self-employment), then you may need to complete a self-assessment tax return.”