Millions of state pensioners across the UK are set to receive a significant income boost following the Chancellor's Autumn Budget, but a hidden tax implication could dampen the celebrations.
The Triple Lock Promise Delivers
Chancellor Rachel Reeves has reaffirmed the government's commitment to the state pension triple lock, a mechanism guaranteeing payments rise by the highest of three figures: inflation, average earnings growth, or 2.5%. This year, the 4.8% earnings growth figure has triggered the increase.
From April 2026, the full New State Pension will rise from its current rate of £230.25 per week to £241.30 per week. Over a full year, this represents a substantial increase of £561, lifting the annual amount to £12,534.
Recipients of the full Basic State Pension will also see their weekly payments climb from £176.45 to £184.90, an annual gain of £439.40.
The Looming Tax Trap
While the rise offers welcome relief amid the cost-of-living crisis, it introduces a significant financial consideration for pensioners. The increase brings the state pension perilously close to the personal tax allowance, which is frozen at £12,570 until 2028.
This narrow gap means that any pensioner with additional income, such as a private pension or earnings from part-time work, is now far more likely to be pushed over the tax-free threshold. Consequently, many more pensioners could find themselves paying income tax on their additional earnings.
A Political and Economic Challenge
This situation presents a complex dilemma for the government. The triple lock is a key manifesto pledge designed to provide retirement security, yet its success is creating a fiscal drag effect where more citizens are drawn into the tax net without any change to the allowance rules.
With an ageing population and rising living costs, the state pension bill is growing rapidly. The Chancellor acknowledged this balancing act, stating her Budget would take "fair choices to deliver on the country's priorities".
Rachel Reeves emphasised the government's support for pensioners, saying: "Whether it's our commitment to the triple lock or to rebuilding our NHS to cut waiting lists, we're supporting pensioners to give them the security in retirement they deserve."
The Budget, scheduled for announcement on Wednesday, November 26, solidifies this pension increase, which outpaces the current annual inflation rate of 3.6%.
