State Pension to RISE £500 From April 2027 – But Millions Could Be Pushed Over Tax Threshold

The State Pension is expected to rise by almost £500 from April 2027, but millions of pensioners could be pushed over the tax threshold.

Each year the State Pension rises in line with the ‘triple lock’ guarantee, which means it increases by the higher of:

• inflation (announced the previous year)
• wage growth (between May and July)
• 2.5%

New wage data revealed that wage growth, including bonuses, was 3.9% in the three months to July.

By contrast, inflation currently sits at 2.9%. So unless inflation increases significantly, wage growth is likely to be used as the figure to determine the State Pension rise from next April.

The final inflation figure will be published in October when the government delivers the Budget, which sets out its financial plans.

How much could the State Pension rise by?

Currently, the new State Pension, for those who reached State Pension age after 2016, is worth £241.30 per week.

An increase of 3.9% would take it to £260.70 a week or £13,036.40 a year. That’s a rise of £488.

For those receiving the old State Pension, for those who hit State Pension age before April 2016, is worth £184.90 a week and would rise to £192.10 per week or £9,989.20 a year. This totals a £373.40 boost.

The table below shows how much the State Pension would increase if it rises by 3.9%:

Millions more could end up paying tax

Millions more retirees could end up paying pension tax with the expected State Pension increase.

That’s because the rise pushes the annual income for the new State Pension to £13,036, which is above the tax-free personal allowance of £12,570.

Freezing the tax-free allowance means that more people get pushed into a higher tax bracket because it doesn’t account for inflation, increasing the amount of pension income received.

This could leave retirees who are dependent on the State Pension in a vulnerable position as they would be liable to pay tax of 20% on the sum above their personal allowance.

It follows recent estimates from HM Revenue and Customs (HMRC) that around 10 million over-65s are now paying income tax on their pension. That’s an increase of more than 3 million people since the tax thresholds were frozen in April 2021/22.

What can you do?

Understanding how much income you’re likely to receive when you retire and what taxes you might need to pay is key.

Using a free pension calculator can help you estimate how much pension income you’re on track to receive.

Be sure to include any income you could get from a workplace pension, personal pension or SIPP.

It’s also important to check your State Pension forecast to get an idea of how much State Pension income you’re on track to receive.

Pensions are complex, so if you’re unsure or concerned, speaking with an FCA-regulated financial adviser or pensions specialist could help you plan effectively for retirement.