The full new state pension is set to rise by close to £500 a year in 2027 as a result of the triple lock, inflation figures released today confirm.
Under the triple lock, the state pension increases every April by whatever is the highest – the consumer prices index (CPI) measure of inflation in the previous September, average annual total earnings growth in May to July of the previous year or 2.5 per cent.
The relevant earnings growth figure has previously been confirmed as 3.9 per cent, and September’s inflation figure was confirmed to be lower than this on Wednesday morning – at 3.5 per cent.
This means the state pension will almost certainly rise by 3.9 per cent next April, with this likely to be confirmed by the Government at Budget.
The current new state pension, received by those who reached state pension age after 6 April 2016, is £241.30 a week, and if it were to increase by 3.9 per cent, would rise to £250.70 a week. Over a year, this would equate to an increase from £12,547 to £13,036 – totaling £489.
Those who retired before this date, and are on the basic state pension, would see their weekly state pension increase from a maximum of £184.90 to £192.10 a week.
Not all pensioners receive the full state pension, those who do not have a full national insurance (NI) record receive less.
Some pensioners also have an additional state pension, or SERPS, as well as their basic state pension. These pensioners will receive an inflation-linked increase on their additional state pension payments, rather than the earnings-related increase of 3.9 per cent.
Tax bills for pensioners
All UK taxpayers have a tax-free allowance of £12,570 that they can earn before they start to owe income tax at the basic rate of 20 per cent.
The thresholds at which you start owing higher rates of tax – and the rates you’ll pay- can be seen in the table below (though these only apply in England, Wales and Northern Ireland, as Scotland has a separate system). If you’re a pensioner and receive a private pension and a state pension, the two figures are combined to give you your full income.
Until now, people relying solely on the state pension have received below £12,570, and so they have never needed to pay tax on it.
Because state pensions are paid at the previous year’s rate for the first week of the new tax year, someone receiving only the full new state pension would get £13,027 over the 2027-28 tax year.
Of that amount, £457 sits above the personal allowance. At the basic rate of 20 per cent, that works out at £91.40 in tax.
Ordinarily, this kind of small tax bill would be collected through Simple Assessment, a system HMRC uses for people with straightforward tax affairs who do not otherwise need to file a return.
However, in last November’s Budget, former chancellor Rachel Reeves pledged that “people only in receipt of the basic or new state pension do not have to pay small amounts of tax through Simple Assessment from April 2027”.
And The i Paper revealed in July that Andy Burnham intends to stick to that pledge, with a Treasury spokesperson saying they were “committed to that over this Parliament”.
But this pledge only covers pensioners whose sole income is the basic or new state pension.
Anyone who also has other income, such as a private or workplace pension, savings interest or earnings, will not benefit from the exemption, and could be required to pay more tax.
Their state pension will be added to that other income, and they will pay tax on however much of the combined total sits above the £12,570 personal allowance.
Burnham set to change triple lock in future
The triple lock itself is now facing a shake-up under Burnham, who announced at Labour’s annual conference last month that he intends to change the system from April 2030 to help fund a new National Care Service.
Burnham has pledged to honour Labour’s manifesto commitment to keep the triple lock unchanged for the remainder of this Parliament, meaning pensioners will continue to benefit from the mechanism.
After that, the earnings element would be removed as an automatic annual measure, with the state pension instead rising by at least inflation or 2.5 per cent each year and a new link designed to ensure it retains its value relative to average earnings over time. Burnham said the changes would generate significant savings to help fund free personal care for older people.
If this policy had been introduced in 2011 instead of the triple lock, the full basic state pension could be around £564 a year lower than the current level of £184.90 per week, analysis by The i Paper suggests.