HMRC Office
State pension to rise by 4.8% to £12,590 in April Photo credit: Pexels

The UK's Department for Work and Pensions (DWP) is set to increase the state pension by 4.8% in April 2026, raising the full new annual amount to approximately £12,590. While this boost offers welcome relief for millions of retirees, it also brings them closer than ever to the income tax threshold, prompting questions about future tax liability and how HMRC calculates pension income.

The increase follows revised wage growth figures from the Office for National Statistics (ONS), which showed average earnings—including bonuses—rose by 4.8% between May and July 2025. Under the government's triple lock policy, pensions rise each year by the highest of inflation, wage growth, or 2.5%. With inflation currently hovering around 3.8%, earnings are expected to be the benchmark for the April 2026 adjustment.

The Tax Threshold Tension

At first glance, the new pension figure appears to exceed the £12,570 personal allowance, which is the threshold at which individuals begin paying income tax. However, HMRC uses a specific calculation method that keeps most pensioners just below the line.

Instead of multiplying the new weekly rate by 52, HMRC applies the uprated amount for 51 weeks and the previous rate for one week, reflecting the timing of the April increase. This results in a calculated annual pension income of £12,546.80, narrowly avoiding tax liability for those whose only income is the state pension.

Still, many pensioners receive additional income from private pensions, savings interest, or part-time work, which could push them over the threshold. Those affected may need to file a tax return or adjust their PAYE tax code to avoid unexpected bills.

What the New Rates Look Like

Based on the 4.8% increase, the full new state pension will rise to £241.30 per week, up from £230.80. The full basic state pension will increase to £184.90 per week, up from £176.75. These figures are subject to final confirmation once inflation data is released later this month, but wage growth is widely expected to be the determining factor.

The government calculates annual pension income using a daily rate multiplied by 365.25, accounting for leap years. This method ensures consistency across tax years and aligns with broader HMRC income assessment practices.

Fiscal Impact and Political Pressure

The upward revision in wage growth is estimated to add £100 million to public spending, according to government sources. Chancellor Rachel Reeves faces mounting pressure to balance the books while maintaining the triple lock—a policy that remains popular among older voters but is increasingly costly for the Treasury.

Ministers have reiterated their commitment to the triple lock, despite concerns about long-term affordability. The April 2026 increase will be formally confirmed in the upcoming Budget, following the release of inflation figures.

What Pensioners Should Watch Out For

While the tax threshold remains technically unbreached for most, pensioners should be aware of the following:

  • Additional income sources may trigger tax liability, even if the state pension alone does not.
  • PAYE codes may need updating to reflect changes in income.
  • Future increases could push pension income above the threshold if the personal allowance remains frozen.
  • Inflation data could still influence the final rate, though wage growth is the likely benchmark.

Pensioners are advised to monitor official announcements from the DWP and HMRC, and consult tax guidance if they have questions about their individual circumstances.

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