DWP State Pension will rise to £12,631 in Next Year: Deutsche Bank forecasts the triple lock will trigger a 5.5 per cent increase

Starting April 2026, millions of UK pensioners will have to pay income tax on their state pension for the first time, according to a new analysis by Deutsche Bank. This is due to the rising state pension surpassing the frozen personal allowance threshold. As a result, around nine million retirees will face tax deductions, sparking concerns over the financial burden on pensioners.

Why Pensioners Will Start Paying Tax on State Pension

The UK government has frozen the personal allowance at £12,570 until 2029. Meanwhile, Deutsche Bank predicts that the state pension will rise to £12,631 in 2025, exceeding the tax-free limit for the first time. This means pensioners will now be required to pay tax on their state pension income.

Triple Lock Mechanism Behind the Increase

The increase in state pension payments is due to the triple lock system, which guarantees that pensions rise each year by:

• The rate of inflation
• The growth in average weekly earnings (AWE)
• A minimum of 2.5%

Deutsche Bank forecasts that the triple lock will lead to a 5.5% rise in pensions next year, mainly due to increasing wage growth. This rise will outpace inflation, which is expected to be around 4.25% in September 2025.

How Much Tax Will Pensioners Pay?

Initially, the tax amount will be small. A pensioner whose only income is the state pension will owe £12 in tax from April 2026. However, as pensions continue to rise and personal allowances remain frozen, this amount could increase significantly in the coming years.

Former pensions minister Sir Steve Webb has advised retirees to prepare for future tax obligations. He noted that many pensioners might spend their income before realizing they owe tax, which could lead to financial difficulties.

Political Reactions and Policy Debates

The issue has sparked political controversy, with some critics calling it “Labour’s retirement tax.” The Conservative Party had proposed a “triple lock plus” policy during the election, which would have increased pensioners’ tax-free allowance in line with state pension rises. However, Labour dismissed this plan as unrealistic.

Government’s Defense

The UK Treasury has defended its stance, stating that the state pension remains the foundation of financial security for pensioners. According to an HM Treasury spokesperson:

“We are committed to the triple lock, and pensioners whose sole income is the new state pension and who have not deferred or received protected payments do not pay any income tax.”

Future Outlook: More Pensioners to Pay Tax

The number of pensioners paying income tax is expected to rise significantly over the next decade. Analysis by LCP suggests that by 2032, around 10 million pensioners will be paying income tax, compared to nine million in 2026.

Additionally, Labour has pledged to increase tax thresholds in line with inflation from April 2028, but poor economic growth may impact this commitment.

With the personal allowance frozen and the state pension rising, more pensioners will be drawn into the tax net over time. While the initial tax amount is small, retirees should prepare for higher tax liabilities in the future. Political debates over pension taxation will likely continue, especially as the number of affected pensioners grows. For those relying solely on their state pension, financial planning will become increasingly important to manage these changes.

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