A new study shows that older people would be worse off by £1,300 a year if the full rate state pension had gone up with inflation instead of the triple lock. This month, the headline state pension will go up by 4.8% to £12,548 a year, which is more than inflation. If it had only gone up with prices since 2016, it would be £11,268.
People who retired in the last ten years and paid enough National Insurance now get a flat rate state pension. The triple lock says that this amount should go up every year by the highest of inflation, average earnings growth, or 2.5 percent.
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Vanguard, which did the maths, says, “The new state pension has gone up since 2016, with a break for the tax year 2022–23 because of Covid.”
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“People who get the full new state pension are almost £1,300 better off because of the triple lock than they would be if there was only an inflation link.
“This is good news for retirees because the state pension is a big part of most people’s retirement plans. It means that a lot of their basic costs will be covered by this guaranteed income.”
Right now, CPI inflation is at 3%, down from 3.8% in the month that decided the triple lock increase last autumn. However, it was still lower than earnings growth, which was 4.8% at the time.
Since 2016, wages have caused the state pension to go up six times, CPI inflation three times, and the 2.5 percent backstop to be used twice.
Wages would have been used in 2022 as well, but the last Tory government made people angry by getting rid of the earnings part that year. This was because the pandemic temporarily raised it to more than 8%.
Before the Tories put in place the triple lock in 2011/12, inflation was used to figure out how much the state pension would go up each year.
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The current government has promised to keep the triple lock for the whole of this parliament. Critics say it is too expensive in the long run, even though it is popular with older voters.
Financial experts have also said that it would be unfair to poorer people, who tend to live shorter lives, if the state pension age had to go up to keep the higher payouts.
Before 2016, people retired under the old two-tier state pension system, which included a basic rate and extra payments called S2P or Serps if they were earned earlier in life.
The basic rate, which is now £184.90 a week, goes up according to the triple lock, and the top-ups go up with inflation.
Vanguard says that the current full state pension of £12,548 is just below the personal allowance of £12,570, which is the amount at which people start to pay income tax. “The threshold at which income tax is paid has been frozen since 2021, meaning 2.1 million more pensioners paid income tax in the 2025/26 tax year,” it says. “The state pension has gone up from 74 percent of the allowance to 95 percent in 2025/26.” The state pension is now £12,548, which is 99.8% of the personal allowance. This means that pensioners only need £22 of other income to start paying income tax, compared to £3,230.80 of other income in 2021/22.
How to keep taxes from taking your retirement income
Vanguard says that you need to think carefully about taxes and retirement in order to keep as much of your money as possible. Here are some tips. The triple lock: How much the state pension is now
1. Only draw what you need
Because the state pension now takes up most of the personal allowance, taking extra money from private pensions could mean paying more taxes and running out of savings faster. You can keep your pension money growing tax-free by leaving extra money in it. This also keeps you from having to pay taxes on interest earned on savings.
You can usually take out up to 25% of your pension without paying taxes on it, and you don’t have to do it all at once. You can do it whenever you need the money.
2. Don’t forget to use tax wrappers.
Since the state pension takes up most of your personal allowance, it’s even more important to make sure your other assets are safe from taxes. Make sure that any stocks, cash, or other investments are in an ISA and not in regular accounts.
3. Get money from different places
You could have a pension, an ISA, a savings account, and a general investment account. For most people, the first thing they should do is take money out of their investment accounts and cash savings. This will let their money grow tax-free for longer in Isas and pensions.
4. Make plans together
If you’re in a relationship, working together on your finances can help you save money on taxes by allowing you to double up on things like personal, Isa, and capital gains tax allowances. You can also move assets between spouses or civil partners to take advantage of the lower tax rate.
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