As the UK continues to face economic pressures, a projected 4.6% increase in average earnings including bonuses could result in a £551 rise in the full new State Pension from £11,973 to around £12,524 per year.
With only one month of earnings data left to confirm, the increase is expected to surpass inflation, offering much-needed support for retirees.
However, this uplift also has implications for the number of pensioners who may fall into the income tax net due to the continued freeze on the personal tax allowance at £12,570.
How the Numbers Break Down
The increase in State Pension depends on how the final earnings growth figure settles. Here’s a comparison based on both a 4.6% and a 4.0% rise:
| Pension Type | Current (2025/26) | With 4.6% Increase (2026/27) | Annual Increase | With 4.0% Increase (2026/27) | Annual Increase |
|---|---|---|---|---|---|
| New State Pension | £11,973 / year (£230.25 / week) | £12,524 / year (£240.84 / week) | +£551 / year (+£10.59 / week) | £12,452 / year (£239.46 / week) | +£479 / year (+£9.21 / week) |
Despite the rise, the new pension value remains just below the personal tax threshold, but it brings thousands of pensioners closer to that line.
More Pensioners Now Liable for Income Tax
According to the latest data from HMRC, 8.7 million people over State Pension age are expected to pay income tax in the 2025/26 financial year. That’s:
- 420,000 more than in 2024/25
- An increase of 1.85 million compared to 2015/16
This significant growth reflects the frozen personal allowance amidst steadily rising pensions.
Expert Insights: Relief With Risks
David Brooks, Head of Policy at Broadstone, commented that while the increase offers crucial cost-of-living support, it also heightens tensions between current workers (who fund pensions) and retirees (who depend on them). Brooks noted:
- The Triple Lock continues to drive pension increases.
- Rising costs may pressure policymakers to reconsider future strategies.
- There are growing calls for means-testing, although resisted, suggesting a national insurance contribution or revisiting the Triple Lock might be alternatives.
The Bigger Picture: Triple Lock & Political Pressure
The Triple Lock mechanism—which ensures the State Pension rises by the highest of earnings growth, inflation, or 2.5%—has protected pensioner income, but critics argue it’s becoming financially unsustainable.
As the pensioner population grows and life expectancy increases, the cost burden on younger taxpayers continues to mount. Without clear long-term direction, experts warn that structural reform is inevitable.
The expected £551 annual boost to the new State Pension will certainly help many retirees manage rising living costs. However, this relief comes with a downside—more pensioners crossing the income tax threshold due to frozen allowances.
As debate heats up around the sustainability of the Triple Lock, and pressure mounts on policymakers, the future of pension funding may see significant reforms. While no immediate changes are confirmed, the coming years could mark a pivotal moment in how the UK supports its aging population.
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