The state pension is expected to rise by 4.6 per cent in April 2026 under the triple lock pledge, according to predictions from the Office for Budget Responsibility (OBR), after rising by 4.1 per cent next month.
Jon Greer, head of retirement policy at Quilter, said: “The OBR’s latest forecasts confirm we are fast approaching a bizarre tax cliff edge for pensioners.
“That leaves the UK potentially only one year away from pensioners having to effectively hand a portion of their state pension back to the Exchequer in tax, which to many would seem perverse.”
As wage growth is expected to be the highest of these next April, at 4.6 per cent, that is how much it is predicted to grow.
It has led to an extra £11bn being spent on the state pension per year, a report by the Institute for Fiscal Studies (IFS) found.
The personal allowance – the threshold below which no income tax is paid – has been frozen for years and will remain so until April 2028 at least.
The following year, the state pension will exceed the threshold, reaching £246.95 per week, a level that will push the benefit more than £300 above the income tax threshold for the first time.
It raises fundamental questions about the fairness of the current system and whether it needs urgent reform, experts have said.
“The pension credit level is not far behind and it would surely be ridiculous for someone on means-tested benefits to be dragged into the tax net.
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“This issue has been building up for some time as the tax threshold has been frozen while pensions have increased.”
She said: “Pensioners already face financial difficulties, and now some may face additional challenges as their income exceeds the threshold for tax liability. We must ensure that policies to support pensioners don’t end up creating additional burdens.”
He said: “By 2027, it seems certain that the standard rate of the new state pension will be above the tax-free threshold.
“One absurdity of the whole situation is that a pensioner living purely on the new state pension could be regarded as poor enough to receive benefits to help with rent and council tax bills, whilst at the same time being regarded as rich enough to pay income tax.”
According to experts, the problem is not limited to tax policy alone but reflects the broader issue of “fiscal drag” – a situation where a lack of uprating of tax thresholds alongside inflation-driven increases in income creates an unintended and unfair tax burden on individuals.
He said: “What was intended as a mechanism to protect pensioners from poverty is now colliding with fiscal drag.
This is when the state pension is pegged to a fixed minimum proportion of average earnings.
However, experts caution that any change to the triple lock system must be carefully considered, given the state pension is the largest area of welfare spending and is a vital source of income for millions.
Webb concluded: “If Labour is serious about building a fairer and more sustainable system, it cannot ignore the long-term pressures the triple lock presents.”
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