Increase in State Pension by £560 forecasted for next year, potentially leading to the introduction of pensioner tax in 2027 for the first time.
The UK government has announced increases to the state pension for the upcoming year, offering a boost to pensioners across the country. Here's a breakdown of the changes:
Inflation in the year to August held steady at 3.8%, but this hasn't deterred the government from providing an inflation-beating increase to the state pension. The additional state pension, also known as the State Second Pension, will rise in line with the Consumer Prices Index (CPI) figure for the year to September.
The basic state pension is set to increase. For the 2025/26 tax year, it stands at £9,175.40, and for 2026/27, it is expected to rise to £9,607.00. This equates to an increase of £8.30 per week for pensioners.
The new state pension will also see an increase. For the 2025/26 tax year, it is currently £230.25 per week, and for 2026/27, it is expected to rise to £241.05 per week, marking an increase of £10.85 per week.
The state pension growth is determined by the 'triple lock' rule, which ensures the increase is based on the highest of average earnings growth, CPI inflation, or a floor of 2.5%. With average wage growth (including bonuses) in the three months to July 2025 at 4.7%, this rule has played a significant role in the announced increases.
However, the state pension growth may come under scrutiny due to the ongoing strain on public finances. The Pensions Commission has been revived by the government to address the pension under-saving crisis of those due to retire in the mid-century.
The full new state pension, with a 4.7% increase in April 2026, will be at least £12,850. This represents an increase of over £560 compared to the current full new state pension of £12,534 per year.
The state pension age is also set to change. It will gradually increase to age 67 between 2026 and 2028, and it's due to rise to 68 in the mid-2040s. The state pension age review is expected to advocate bringing forward the increase to the late 2030s to save future governments' money.
The regulation that determines how much the pension payment for 2027 increases is governed by the Social Security Code VI (SGB VI). Specifically, § 194 SGB VI mandates automatic pension projection without requiring consent, and § 70 SGB VI allows recalculation and back payment if actual contribution income is higher than projected. This rule will start applying from January 1, 2027.
It's important to note that the old basic state pension also rises under the triple lock, but typically increases by less due to its lower base amount. The basic state pension for 2025/26 is £176.45 per week, and for 2026/27, it is expected to increase to £184.75 per week.
The basic rate income tax threshold remains at £12,570. This means that individuals earning up to this amount will not pay any income tax. The Bank of England recently estimated that CPI will not go above 4% this year, providing some stability for pensioners and workers alike.
In conclusion, pensioners in the UK can look forward to another inflation-beating boost to their annual state pension payment in 2026/27. However, the ongoing strain on public finances and the need to address pension under-saving are issues that will continue to be discussed in the coming years.
Read also:
- The Cost of Speech is Zero, True Strength Lies in Unity
- Aiming to simplify the move towards cleaner automobiles, the newly established ministry plans to take direct action with Pannier-Runacher, Létard, and Vautrin at the helm.
- "The imperfect yet essential documentary, "Planet of the Humans," raises challenging and uncomfortable inquiries"
- Exciting Escapades of Tintin
