New state pension ‘guaranteed’ to exceed tax threshold in 2027 under triple lock policy
Pensions & benefits Pensions tax
Today’s confirmation that the new state pension will be £230.25 per week from April 2025, coupled with frozen tax thresholds until April 2028, means that the new state pension is guaranteed to exceed the income tax personal allowance in April 2027.
This is because the triple lock formula provides a floor of 2.5% increases, meaning the rate will rise to 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 rise by CPI but the state pension rises by more, then this situation will continue indefinitely.
The table shows the relevant figures:
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.
Steve Webb Partner at LCP
