The state pension may increase to £12,600 in the upcoming year, forcing millions to pay taxes

Economists predict that the triple lock may result in a 5–5% increase in the state pension in April 2026

The full state pension will therefore exceed the tax-free personal allowance.

As early as next year, new projections suggest that retirees may be required to pay taxes on their state pension.

Due to the triple lock, the full state pension could increase by 5.5 percent to £12,631 annually in April 2026.

The 12,570 tax-free personal allowance would be violated in this case, and the excess would be subject to the highest income tax rate for pensioners.

The triple lock requires that the payment be raised annually by inflation, yearly earnings, or 2.5 percent, whichever is higher. Currently valued at 11,502 annually, the full new state pension will increase by 4.1 percent to 11,973 this April.

Forecasts from the Office for Budget Responsibility (OBR), which were published with the Autumn Budget, had previously predicted that the state pension would not be taxed until April 2027.

However, Deutsche Bank research indicates that robust wage growth will accelerate the state pension increase.

In the three months leading up to December 2024, wage growth in the UK reached 50.9 percent, according to figures released this week. Nonetheless, the state pension triple lock is based on yearly earnings for the three months leading up to July, and Deutsche Bank estimates that this amount may reach 5 to 5 percent.

"As of right now, our projection for average weekly earnings total pay in the three months to July sits at 5point 5 percent year-on-year," the chief UK economist for Deutsche Bank, Sanjay Raja, says. Our CPI inflation estimate for September 2025 is only about 4.25 percent.

Thus, according to our current forecasts, state pensions will increase by 5.5 percent in April 2026.

"Paying tax on state pension income will feel very unfair, especially for those who solely rely on the benefit to make ends meet," Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, tells BFIA. It will be very concerning for retirees who are already having difficulty keeping up with rising living expenses to be forced to pay taxes when they have no other sources of income.

"In the meantime, people who receive a private pension income will just see even more of that money sucked up by tax because income tax thresholds have been frozen," she continues.

Making the state pension subject to taxes could be a "administrative nightmare," according to former pensions minister Ros Altmann.

She remarks: "A large number of pensioners have never paid taxes in their lives. A basic assessment form may be provided to those with private pensions or to younger recipients of the new state pension who were not enrolled in the previous state pension system to help them understand the taxes and payment procedures.

The older ones, however, would need to complete a tax return. Could you picture 90-year-olds being informed that they have a few pounds in unpaid taxes and that they need to file a return or risk fines and penalties?

Why will state pensions be subject to taxation for retirees?

Due to additional income they receive from sources like buy-to-let, part-time employment, personal or workplace pensions, and other sources, millions of retirees already pay income tax.

But if the payout exceeds the personal allowance, those who receive the full state pension and no other income in retirementwho are considered to be among the poorest pensionerswill also be brought into the tax system.

Because the 12,570 personal allowance is set to remain unchanged until 2028, any yearly increases to the state pension could result in a higher tax obligation.

In the event that the full state pension increased to £12,631 annually in April of next year, as Deutsche Bank had forecast, the additional 61 would be subject to taxes. A basic-rate taxpayer's tax bill would be 12 as a result. The bill would be 24 for a taxpayer with a higher rate.

In April of next year, the OBR had previously predicted a 2 point 6 percent increase in the state pension. The state pension would rise to 13,230 annually by 2029, it continued.

In four years, the state payout would be 660 more than the personal allowance if the personal allowance freeze was maintained past 2028 and the 2029 OBR forecast came to pass. For basic-rate taxpayers, this would result in a tax bill of 132, while higher-rate taxpayers would have to pay 264.

The retirement tax: is it unjust?

During last year's election campaign, former prime minister Rishi Sunak came up with the term "retirement tax" after asserting that a Labour government would impose a "retirement tax" on the state pension.

During his tenure as chancellor, Sunak frozen income tax thresholds until 2026 in the Spring Budget of 2021. Jeremy Hunt, the former chancellor, later extended the freeze until 2028.

According to the Conservatives, "triple lock plus" would be implemented to shield the state pension from income taxation. This was supposed to be a new personal allowance for retirees that would increase in tandem with the triple lock, keeping up with the state pension and lowering the possibility of taxes.

But Labour did not promise such a policy, and since taking office, it has not announced any plans to shield pensioners from taxes as the state pension increases.

According to Clare Moffat, a pensions and tax specialist at Royal London, "It is unclear if the previous government's proposals to avoid paying any income tax on the state pension will be revisited." A scenario in which you receive an increased pension from the state while some of it is returned to you in taxes would be illogical.

Recent data from HMRC indicates that two million more people over 65 are paying taxes now than they did in 202021, and "that would rise substantially if the state pension increased to over 12,570," according to Royal London.

The state pension "may put pressure on the government to unfreeze the personal allowance to prevent retirees being taxed on this vital benefit or reconsider whether more radical action is needed" if it were to surpass the personal allowance, according to Haine.

A Treasury spokesperson stated: "The state pension serves as the cornerstone for guaranteeing that retirees can live with the respect and dignity they are entitled to.

"We are dedicated to the triple lock, and pensioners who receive protected payments or have deferred payments and whose only source of income is the new state pension do not pay income taxes.