State pension payments go up each April in line with the triple lock (Image: Getty)
State pensioners may be planning ahead their finances wondering how much the triple lock increase next year. A finance expert has shared his predictions on how much the pay rise could be. He also spoke about whether there could be an inflation shock that makes for a larger increase than anticipated.
Some claimants could face a new £98 tax bill under current rules – although the Government has promised changes here. The triple lock pledge guarantees payments rise each April in line with the the highest of 2.5 per cent, the rise in average earnings or inflation.
Michele Tieghi, financial expert and founder of comparison website psyfi money, said: “Recent figures show that the increase will most likely be between 4 and 5 per cent, with 4.1 per cent being a more specific estimate when looking at earnings growth.”
A 4.1 per cent hike would mean history repeating itself, as there was also a 4.1 per cent increase in payments back in April 2025, also in line with the earnings measure. Such an increase this time round would mean the full new state pension would go up from the current £241.30 a week to £251.20 a week, from £12,547.60 a year to £13,062.40 a year.
Tax bill
However, such a pay boost would also would lift the full new state pension above the £12,570 personal allowance limit, meaning those on the state pension alone would have to pay income tax on their payments. Even with the minimum 2.5 per cent increase, the full new state pension would cross the line into attracting a tax bill under the current rules.
The Government has committed to bringing in a policy to make sure people in this situation do not have to pay the levy. Yet the full details of how this will work have not been made public yet.
Mr Tieghi said there is “a lot of uncertainty” around how this policy will be rolled out. HMRC said previously that legislation would be needed to enact the change.
Extra allowance
The expert said: “It most likely won’t be as simple as giving state pensioners a new tax code, as the state pension is paid without the deduction of tax. Alternatively, the Government could introduce an extra allowance, or special exemption for state pension only pensioners.”
If payments were to go up 4.1 per cent, this means the full new state pension would be £492.40 above the personal allowance, so claimants on the state pension alone would have to pay a £98.48 tax bill.
Otherwise, the state pension would go over the £12,570 personal allowance, costing pensioners £98.48 a year in tax.
Inflation hit?
Looking at the latest inflation figures, inflation was 2.9 per cent for the year to July, so a way behind the earnings measure for now. But with uncertainty around the cost of living, there could be an uptick here.
Food bills could increase with the impact of poor harvests owing to the drought over the summer in the UK, while the effects of the Iran war could also drive up prices. But Mr Tieghi said inflation is unlikely to prove to be the higher number.
The triple lock is based on the inflation figure for the year to September and on the increase in earnings from May to July. The expert said: “It’s definitely possible, but it would require significant additional shock.
“The Bank of England expects inflation to continue to rise over the coming months, and to reach 3.2 per cent by October and November, with higher energy bills affecting the cost of food and other items. This makes a figure between 3 and 3.5 per cent more likely for September, with over 4 per cent being unlikely unless energy and food prices change rapidly.”
