Income tax thresholds and personal allowances are currently frozen until 2028. We’ve seen that freezing thresholds and allowances is a good way to raise tax without the government breaking its manifesto pledge of no increases to national insurance, income tax or VAT.
Often called out as a stealth tax, the government may not have any qualms in extending this freeze out to 2030, in line with Inheritance tax (IHT) thresholds. This would affect every taxpayer, but the more obvious losers would be those receiving the state pension.
In the 2024 Autumn Budget, the government pledged to maintain the state pension triple lock for the duration of this Parliament. The triple lock ensures annual increases to the basic and new state pension by the higher of Consumer Prices Index (CPI), average earnings growth or 2.5%.
The annual increase for tax year 2025/26 was 4.1%, based on average earnings growth, which meant that the new single tier state pension rose to £230.25 per week, or £11,973 p.a. The latest Office for National Statistics (ONS) survey shows the average regular earnings in the June to August 2025 period was 4.7%. This is down from 4.8% in the May to July 2025 period and 5% for the April to June 2025 period.
If the triple lock increase from April 2026 is 4.99% or more, then this will rise above the personal allowance which will be frozen at £12,570. This means that basic rate tax will be due on the amount of state pension in excess of the personal allowance.
Even if the increase is at the 2.5% floor, then it will only take until the tax year 2027/28 for the single tier state pension amount to overtake the personal allowance which will still be frozen at that point. This will continue to get worse for pensioners if the freeze is extended further.
There has been much debate about continuing the triple lock due to the cost of maintaining it. The Office for Budget Responsibility (OBR) project that the annual cost to fund it will be £15.5 billion by 2030. This is unlikely to be sustainable, and a recent Institute for Fiscal Studies (IFS) report discusses that the fallout could mean further increases to state pension age. The IFS argues this would affect those in poorer health, who may not be able to work for longer, potentially cutting short a decent retirement period for them.
If the government decide to change or abolish the triple lock, then this will release billions for the public purse, but again, pensioners may lose out as their state pension may not keep up with average earnings or inflation.
If you have any questions or would like to understand how potential changes announced in the Autumn Budget could affect your clients, get in touch with our team by emailing wealth.sales@canadalife.co.uk
Additional Resources
Will tax-free cash lump sum be capped?
Speculation about the upcoming budget is in full force. One rumour that stands out is around possible changes to tax-free cash withdrawals for pensions. Read this blog to see how a cap on tax-free cash withdrawals could affect your client's pension.
Try our Trust Solution Tool
A trust could protect your client's estate from Inheritance Tax. By answering a few question about your client's circumstances, our Trust Solution Tool will provide options that may work for your client from our wide range of trusts.
Promotion approved on 14/11/25.
Sources:
Fiscal risks and sustainability – July 2025
The triple lock: uncertainty for pension incomes and the public finances
Average weekly earnings in Great Britain: August 2025