Retirees receiving the full new state pension from April 2026 are on course for an increase of 4.8%, according to figures released by the Office for National Statistics (ONS).The boost was confirmed thanks to September inflation coming in below average wages. Under the so-called ‘triple lock’ mechanism the state pension rises each April by the highest of average earnings growth, Consumer Prices Index (CPI) inflation or 2.5%.
With average earnings up by 4.8% for the relevant period, this is the figure expected to apply. As a result, those eligible for the full new state pension should receive around £12,548 a year, or about £241.30 a week, from the new tax year 2026/27.
State pension tax considerations
The current personal allowance, the amount of income you can receive tax-free, stands at £12,570 in the UK. That means the full new state pension alone is now extremely close to the income tax threshold.
For individuals whose only income is the state pension, tax is still not yet a concern. However, many pensioners also receive income from other sources such as private pensions, investment dividends or savings interest.
When combined with the state pension this additional income could push their total taxable income above the personal allowance and trigger new tax liabilities.
If your combined income – state pension plus any private pension payments or investment income – exceeds the personal allowance, you will begin to pay income tax on the surplus.
Given that the full new state pension on its own comes very near that allowance, even relatively modest additional income may tip the balance.
What retirees should consider
If you receive the full new state pension and have other sources of income, here are some key points to check:
-Identify all taxable income: Include any private pension income, dividends, bank interest (above the personal savings allowance), rental income, and so on.
-Calculate your total annual income: Add your state pension, other pensions, investment income and any other taxable sources such a dividends or savings interest.
-Compare against your personal allowance: With the personal allowance unchanged at £12,570, the state pension alone is almost at that level, so any extra income may push you into tax.
-Consider timing of income: If you have flexibility (for example choosing when to draw from a private pension or take a lump sum) it could be worth spreading income or deferring it, to reduce tax liability in a given tax year.
-Review tax-efficient options: Some investment income may be tax-efficient (for example ISAs) or you may be able to make pension contributions (if eligible) that reduce taxable income if you’re still working.
Planning for income tax
An increase in the state pension is welcome news and helps protect retirement income against wage inflation.
But with tax thresholds frozen and additional income streams common among retirees, it is sensible to review your overall financial position.
Knowing that your state pension alone is very close to the personal allowance means you need to think proactively about how your full income will add up in terms of tax. Paying income tax in many circumstances is unavoidable, but it is still important to consider your options and look at the bigger picture.
If you are at all uncertain about how best to structure your income, plan for withdrawals from pensions or investments, or manage tax-efficiency in retirement, you should consider speaking to a qualified financial planner.
A professional planner can help you align your retirement income streams, consider tax implications, and map out a long-term strategy that meets your financial needs while keeping tax liabilities as low as possible.
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