The full New State Pension now stands at £12,547 for the 2026/27 tax year
Financial experts have cautioned that the recent State Pension increase under the Triple Lock is pushing more pensioners towards paying income tax. The Triple Lock mechanism ensures the State Pension rises annually by whichever is greater: earnings growth, the Consumer Price Index (CPI) inflation rate, or 2.5 per cent.
The full New State Pension now stands at £12,547 for the 2026/27 tax year. Yet this uplift leaves just £36 of breathing room before breaching the Personal Allowance threshold of £12,570, meaning more pensioners with even modest additional income will face tax in their retirement years.
While the annual increase has been welcomed following years of soaring inflation, the ongoing freeze on tax thresholds until April 2031 means the gap between the State Pension and the tax-free limit is closing rapidly, reports the Daily Record.
Derence Lee, Chief Finance Officer at Shepherds Friendly, commented: “With the full New State Pension rising to £12,547 in April, and Personal Allowance now frozen at £12,570 until 2031, more retirees are edging dangerously close to paying income tax on their State Pension.
“The Triple Lock has played a vital role in helping pensioners keep pace with the high inflation seen in recent years. However, if the tax-free allowance remains frozen, some of the recent State Pension increases could effectively be taken back through income tax. For pensioners who rely mainly on their State Pension to cover everyday essentials, even a small tax bill could make a noticeable difference to their finances.”
It’s crucial to understand that anyone whose only income is the State Pension will not be liable for income tax. However, the full New State Pension is set to surpass the Personal Allowance in the 2027/28 financial year.
State Pension Rates 2026/27
Full New State Pension
- Weekly: £241.30 (from £230.25)
- Four-weekly pay period: £965.20
- Annual amount: £12,547
Full Basic State Pension
- Weekly: £184.90 (from £176.45)
- Four-weekly pay period: £739.60
- Annual amount: £9,614
Other State Pension rates
- Category B (lower) Basic State Pension – spouse or civil Partner’s insurance: £110.75 (from £105.70)
- Category C or D – non-contributory: £110.75 (from £105.70)
The new payment rates will start on April 6.
The UK Government recently confirmed that HM Revenue and Customs (HMRC) will introduce new measures this year to ensure pensioners – whose sole income is the State Pension – will not need to complete a Simple Self Assessment tax return if their payment exceeds the Personal Allowance threshold of £12,570.
The problem is largely driven by what is commonly referred to as ‘fiscal drag’, where people find themselves liable for tax not because rates have risen, but because thresholds have remained frozen while incomes increase.
While the majority of retirees have additional revenue from private or workplace pensions, those depending primarily on the State Pension could still feel the pinch if even a modest portion becomes subject to taxation. Lee suggested that clearer guidance from the UK Government would assist pensioners in better understanding what lies ahead.
“Clear guidance from the UK Government on pension taxation and savings would give retirees certainty and peace of mind, but until then, pensioners should check whether they’re eligible for Pension Credit, which can top up weekly income for those on lower earnings.
“Those still working part-time may wish to consider additional private pension contributions, while anyone approaching retirement should consider reviewing how ISAs, workplace pensions and diversified investments can help build a more resilient income stream.”
He went on to say: “By preparing today, pensioners give themselves the best chance to ensure their income keeps pace with costs and maintain a sense of financial stability.”
With further State Pension rises on the horizon, the strain caused by frozen tax thresholds looks set to remain a pressing concern for retirees managing their finances.
State Pension and tax
Guidance on GOV.UK states: “You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates.
Your total income could include:
- the State Pension you get – Basic or New State Pension
- Additional State Pension
- a private pension (workplace or personal) – you can take some of this tax-free
- earnings from employment or self-employment
- any taxable benefits you get
- any other income, such as money from investments, property or savings
Check if you have to pay tax on your pension
Before you can check, you will need to know:
- if you have a State Pension or a private pension
- how much State Pension and private pension income you will get this tax year (April 6 to April 5)
- the amount of any other taxable income you’ll get this tax year (for example, from employment or state benefits)
You cannot use this tool if you get:
- any foreign income
- Marriage Allowance
- Blind Person’s Allowance
Use this online tool at GOV.UK to check if you have to pay tax on your pension. The full guide to tax when you get a pension can be found on GOV.UK here.
