26 March 2025
If you are covering the Spring Statement and OBR forecasts around future state pension increases, please see the following comment from Jon Greer, head of retirement policy at Quilter:
The OBR’s latest forecasts confirm we are fast approaching a bizarre tax cliff edge for pensioners. With the state pension forecast to rise by 4.6% in April 2026 under the triple lock, it will land just below the frozen personal allowance.
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.
Reeves had committed to keeping allowances frozen until 2028 but, depending on what the actual uprating figure may be, could look to avoid the full state pension exceeding the personal allowance via the Autumn Statement later this year.
What was intended as a mechanism to protect pensioners from poverty is now colliding with fiscal drag. This situation is the result of the triple lock producing some significant increases in the state pension due to high inflation and earning figures while the government has failed to uprate tax thresholds in tandem.
It also adds to the debate of what looks like the inevitable review of triple lock. One potential reform to the triple lock is to link increases to earnings, with a temporary CPI indexation when inflation exceeded wage growth but generally falling in line with long term wage increases, helping align pension growth with the wider economy and creating a more predictable and affordable system.
Any change must be handled carefully. The state pension is the single largest area of welfare spending and a vital source of income for millions. But if Labour is serious about building a fairer and more sustainable system, it cannot ignore the long-term pressures the triple lock presents.
|
Full new state pension |
|||||
|
Triple lock increase |
Weekly |
Annual |
Personal Allowance |
Difference (Personal Allowance - Pension) |
|
|
2024/25 |
8.50% |
£221.20 |
£11,541.90 |
£12,570 |
|
|
2025/26 |
4.10% |
£230.25 |
£12,016.75 |
£12,570 |
|
|
2026/27 |
4.60%* |
£240.90 |
£12,569.85 |
£12,570 |
£0.15 |
|
2027/28 |
2.50%* |
£246.95 |
£12,885.50 |
£12,570 |
-£315.50 |
Note that annual state pension figure is the weekly figure divided by 7 to get the daily figure then multiply by 365.25 (to account for leap years). State pensions rounded up to nearest 5p.
*OBR forecasts
