The state pension could rise above £12,600 as early as next year due to the triple lock – dragging millions of pensioners into paying more tax, analysts have warned.
The new state pension could rise to £12,631 from £11,973 in April 2026 under the triple lock pledge – an increase of 5.5 per cent – according to analysis by Deutsche Bank.
Frozen tax thresholds mean this will breach the £12,570 personal allowance, the point at which income tax is payable, for the first time.
The issue became a key topic during last year’s general election campaign, with Labour refusing to match the Conservatives’ “triple lock plus” pledge.
Under the plans, the personal allowance for pensioners would have increased by at least 2.5 per cent or the highest of earnings or inflation, preventing them from paying income tax on their state pension.
Pensioners already pay tax if their overall income – including the state pension and other income – breaches £12,570, but the increase could mean around 450,000 people pay tax on their state pension alone.
A basic rate tax payer on the full new state pension alone would pay just over £12 in income tax if the forecasted increase were correct.
Under the triple lock, the state pension is increased by either the average increase in wages from May to July of the previous year, CPI inflation, or 2.5 per cent – whichever is highest – every April.
Experts are predicting that wage growth this summer could count towards the growth in the state pension from next April. If correct, this will leave more pensioners in the unusual situation of handing cash from the state back to the taxman.
Speaking to The i Paper, Sanjay Raja, Deutsche Bank’s chief UK economist, said: “As of right now, our projection for average weekly earnings total pay in the three months to July sits at 5.5 per cent year-on-year.
“Our September 2025 CPI inflation projection sits just around 4.25 per cent. Therefore, based on our current projections we see state pensions rising by 5.5 per cent in April 2026.”
Wage growth, excluding bonuses, accelerated to 5.9 per cent in the October to December period last year, according to figures released today (18 February), a 5.6 per cent rise in the three months to November.
This much higher than the UK’s inflation rate of 2.5 per cent which is predicted to rise again as a result of higher energy and water bills.
Experts at Capital Economics also expect the new state pension will rise by 5.1 per cent in April next year, which would take the amount to £12,583 a year.
Ashley Webb, UK chief economist at Capital Economics, said its forecasts show average earnings growth, including bonuses, will ease from 5.9 per cent to 5.1 per cent in the three months to July.
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Read MoreFormer pensions minister Sir Steve Webb confirmed a significant increase in the state pension next April could “easily” take the standard rate of the new state pension over the income tax threshold.
He said: “In theory this could mean that someone who had a full state pension but no other taxable income having an annual tax bill of a few pounds or even pennies, via the simple assessment process.
“In practice, HM Revenue & Customs (HMRC) would be likely to decide that such small amounts were not cost effective to collect.
“But as the pension continues to rise in future years, eventually these people would all start to get tax demands.”
During last year’s election campaign, the Tories accused Labour of planning a “retirement tax” because the party did not match the triple lock plus pledge. The Labour government has not committed to raising the income tax threshold – either for pensioners or other taxpayers.
Chancellor Rachel Reeves has said she does not intend to introduce any further tax rises but has not ruled out confirming a continuing freeze of tax thresholds, including the personal allowance – pulling more people into higher tax brackets as their salaries rise.
If retirees were required to pay income tax on their state pension payments through simple assessment, they wouldn’t have to file a tax return as it would come from the source.
Retirees who receive the full new state pension will see their payments rise to £230.25 a week, or £11,973 a year, from this April.
These amounts apply to those who reached state pension age – which is currently 66 for men and women – after April 2016 and have the full 35 qualifying years of national insurance contributions (NICs).
The full basic state pension, paid to those who reached state pension age before April 2016, will rise to £176.45 a week, or £9,175 a year.
Until then, retirees will continue to receive their state pension at the current rate of £221.20 a week, or £11,502.40 a year, for those on the new state pension, and £169.50 a week, or £8,814 a year, for those on the basic state pension.
Dr Dimitrios Syrrakos, senior lecturer in economics and finance at Keele University, said: “With growth in average earnings, excluding bonuses, almost reaching 6 per cent, and a lot higher than Office for Budget Responsibility’s estimate of 4.2 per cent, this will significantly drive up the bill for state pensions.”
The wage growth figures also “undermines” the Bank of England’s efforts to contain inflationary pressures and stabilise inflation towards the Bank’s 2 per cent inflation target, he said.
“Above target inflation was forecasted by the Bank with a significant decrease towards the target by the end of 2025/beginning of 2026. However, the 4.4 per cent increase in wage growth puts these forecasts in question.”
Ros Altmann, who was pensions minister directly after Sir Steve, said it’s important to remember that no one can be sure what will happen to earnings growth in the next few months.
She said: “Especially after the rise in employer NICs and the trend of increased layoffs seen more recently. Forecasts can only be as good as their assumptions, and these are not written in stone.”
The Department for Work and Pensions (DWP) has been contacted for comment.
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