Millions of retirees will receive a 4.8 percent increase to their state pension from today in one of the biggest rises seen in the past decade. With energy bills set to climb & the cost-of-living crisis returning, the increase worth up to £575 a year provides welcome support to pensioners. However around 8.2 million people will not receive this full increase according to Money Mail and This is Money. Fewer than two in five retirees received the full 4.8 percent uplift to all their payments based on our analysis. While younger pensioners are getting larger increases many are missing out on more than £100 this year because of outdated rules that disadvantage older retirees. The smaller increase will disappoint many pensioner households who are preparing for rising bills driven by the oil and energy crisis triggered by the Iran war.
How your increase is calculated
The triple lock is praised as the key mechanism that protects pensioners from rising costs. It is a promise to increase state pension payments every year by the highest of inflation, wage growth or 2.5 percent. Payments rise by the highest of the previous September’s consumer prices index inflation figure, average earnings growth from the previous May to July, or 2.5 percent. This year earnings growth was used to determine the pension increase size as it stood at 4.8 percent compared to an inflation rate of 3.8 percent. The triple lock has become a political issue in recent years with both the Conservatives and Labour listing it as a key manifesto pledge in the 2024 General Election. Labour has pledged to keep it for the remainder of this Parliament. Reform’s Nigel Farage last week even promised that the party would commit to the lock if it wins the next election.
Lose out on £115 a year
It sounds like a minor administrative difference but this sneaky deviation in the rules means younger pensioners are receiving a higher boost to their monthly payments compared to older retirees. Some of these additional Serps payments are just a few pounds a week. But for other retirees the additional state pension element makes up more than half of their weekly payments. This means that the bulk of their state pension will rise by the lower amount. Take someone earning the maximum amount of both the basic state pension & additional payments for example. In the 2025-26 tax year the full basic state pension was £176.45 while the top amount for additional earnings was £222.10. For the earnings-related part of the payment this maximum includes any Serps & S2P and any additional state pension you may inherit from a spouse.
Younger pensioners hit
A selection of retirees receiving the full new state pension have also been stung by the rule quirk. When the new state pension was introduced in 2016 there are some pensioners who would have been better off under the old system. This is because they might have already built up enough additional state pension earlier in their working life to qualify for more than the headline flat rate. To ensure that they did not lose out under the new system these old entitlements were protected. These protected payments top up the new state pension to the position they would have been in under the old state pension. Retirees who rely on only the new state pension currently do not need to pay any form of income tax. However these extra amounts don’t have the security of the triple lock. They too only rose on Monday at a rate of 3.8 per cent.
Pensioners pulled into tax system
The rising state pension comes with another sting in the tail. The more you receive the greater the risk you will incur an income tax bill. Retirees who rely on only the new state pension currently do not need to pay any income tax. That’s because the total annual £12,547.60 income is below the £12570 threshold at which someone becomes liable to pay tax. However this tax-free allowance has been frozen since 2021. It means that as incomes rise in line with the triple lock more low-income households will be dragged into the tax system in a stealth raid. Frozen thresholds will drag anyone earning the full new state pension into the tax system from next year. Low-earning state pensioners will soon be forced to hand money back to the state. If the triple lock uplifts payments in April 2027 by the minimum 2.5 per cent annual payments will be around £12,861. This means that tax will be due on £291 of the income which is a bill of slightly more than £58 if the pensioner has no other income. But some retirees are already paying income tax on their payments.
