The full New State Pension could rise above the frozen Personal Allowance next year, potentially exceeding the £12,570 tax-free threshold for the first time. If earnings growth of 4.1 per cent determines the Triple Lock uprating for the 2027/28 financial year, the full New State Pension would increase from £241.30 to around £251.20 per week, equivalent to £1,004.80 every four-week pay period and £13,062.40 over the year. That would place the full annual payment approximately £492 above the current Personal Allowance.
Triple Lock and inflation
The latest earnings growth figure of 4.1 per cent, including bonuses, is currently forecast to be the measure used to increase State Pension payments. The latest Consumer Prices Index (CPI) inflation rate rose from 2.6 per cent in June to 2.9 per cent in July, according to the Office for National Statistics (ONS), but remains below the earnings growth measure. The Personal Allowance is the amount of income most people can receive before paying Income Tax and is frozen at £12,570 until April 2031.
Exceeding the threshold would not mean the entire State Pension becomes subject to tax. Income Tax is based on a person's overall taxable income and individual circumstances, and only income above their available Personal Allowance would normally be liable for tax.
State Pension payment projections
Chancellor John Healey will confirm the annual uprating at the Autumn Budget later this year. If a 4.1 per cent increase is applied, the full New State Pension would rise to £251.20 weekly (from £241.30), £1,004.80 four-weekly (from £965.20), and £13,062.40 annually (from £12,547). The full Basic State Pension would rise to £192.50 weekly (from £184.90), £770 four-weekly (from £739.60), and £10,010 annually (from £9,614). The amount someone actually receives depends on their National Insurance record, and not everyone receives the full weekly rate.
Tax on State Pension income
The State Pension counts as taxable income, although it is paid by the Department for Work and Pensions (DWP) without Income Tax deducted first. HM Revenue and Customs (HMRC) looks at a person's total taxable income to determine whether any tax is due. This can include New or Basic State Pension, Additional State Pension, workplace or personal pensions, earnings from employment or self-employment, taxable benefits, and income from savings, investments, or property. The impact of the State Pension rising above the Personal Allowance will depend heavily on other income a pensioner receives.
Tax is not normally deducted directly from State Pension payments. HMRC has issued guidance explaining that where someone receives a private pension or has earnings alongside their State Pension, it will normally try to collect any tax due by adjusting the tax code applied to that other income. Where someone receives a State Pension but has no other source of income through which tax can be collected, HMRC may calculate what is owed and issue a Simple Assessment tax bill. People should check any calculation they receive to ensure the income details are correct.
The UK Government has previously pledged that pensioners whose sole income is the State Pension will not be required to pay Income Tax as a result of Triple Lock increases taking payments above the Personal Allowance. The full New State Pension is currently worth £241.30 weekly, equivalent to £12,547.60 over 52 weeks, leaving just over £22 below the threshold. A 4.1 per cent increase next April would take the annual amount above it. The Personal Allowance is frozen through the 2027/28, 2028/29, 2029/30, and 2030/31 financial years.
People can use an online tool on GOV.UK to check whether they may need to pay tax on their pension income. Before using the service, they need to know whether they receive State Pension or a private pension, how much pension income they expect during the tax year, and details of any other taxable income. The checker cannot be used by people who receive foreign income, Marriage Allowance, or Blind Person's Allowance. HMRC also advises pensioners to check their tax code and the information it holds about their income to ensure they are paying the correct amount of tax.
