Starting today, millions of retirees will get a 4.8 percent raise in their state pension. This is one of the biggest raises in the past ten years. The rise of up to £575 a year is a welcome help for pensioners, especially since energy bills are going up and the cost of living crisis is back. Money Mail and This is Money say that about 8.2 million people will not get this full increase. Based on our research, fewer than two out of five retirees got the full 4.8 percent increase in all of their payments. Older retirees are missing out on more than £100 this year because of old rules that don’t help them as much as younger retirees do. Many pensioner households will be unhappy with the smaller increase because they are getting ready for higher bills because of the oil and energy crisis caused by the Iran war.
How they figure out your rise
People say that the triple lock is the main thing that keeps pensioners safe from rising costs. It says that the state will raise pension payments every year by the highest of inflation, wage growth, or 2.5 percent. Payments go up by either the highest consumer prices index inflation rate from the previous September, the average earnings growth from May to July of the previous year, or 2.5 percent. This year, the size of the pension increase was based on earnings growth, which was 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 making it a key promise in their 2024 General Election manifestos. Labour has promised to keep it until the end of this Parliament. Nigel Farage of Reform even said last week that the party would stick to the lock if it wins the next election.
Lose £115 every year
It may seem like a small difference in the rules, but this sneaky change means that younger retirees are getting a bigger boost to their monthly payments than older retirees. Some of these extra Serps payments are only a few pounds a week. But for some retirees, the extra state pension makes up more than half of their weekly payments. This means that most of their state pension will go up by the smaller amount. For example, someone who gets the most money from both the basic state pension and extra payments. The full basic state pension was £176.45 in the 2025–26 tax year, and the most you could make in extra money was £222.10. This maximum for the earnings-related part of the payment includes any Serps and S2P and any extra state pension you might get from your spouse.
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Younger retirees hit
Some retirees who get the full new state pension have also been hurt by the rule oddity. Some retirees would have been better off under the old system when the new state pension started in 2016. This is because they may have already earned enough extra state pension earlier in their working life to qualify for more than the flat rate. These old rights were protected so that people wouldn’t lose out under the new system. These protected payments bring the new state pension up to the level it would have been at with the old state pension. People who are retired and only get the new state pension do not have to pay any kind of income tax right now. But these extra amounts don’t have the same protection as the triple lock. They also only went up by 3.8 percent on Monday.
Tax system pulled in pensioners
There is another catch with the rising state pension. The more money you get, the more likely you are to have to pay income tax. People who are retired and only get the new state pension don’t have to pay any income tax right now. That’s because the total annual income of £12,547.60 is less than the £12,570 level at which someone has to pay taxes. But this tax-free allowance has been the same since 2021. In other words, as incomes go up because of the triple lock, more low-income families will be pulled into the tax system without them knowing it. From next year on, anyone who makes the full new state pension will have to pay taxes because of frozen thresholds. Low-income state pensioners will soon have to give money back to the state. If the triple lock raises payments by at least 2.5% a year starting in April 2027, payments will be about £12,861. This means that £291 of the income will be taxed, which is a bill of just over £58 if the pensioner doesn’t have any other income. But some retirees are already paying taxes on the money they get.
