Reacting to: State pension likely to top £13,000 a year as UK wage growth slows to 3.9% (BBC News) →
My honest reaction to this one: the £13,000 headline is doing the opposite of what it looks like it's doing. It reads like good news for pensioners, and in cash terms it is — a bigger state pension is a bigger state pension. But the number that actually matters for anyone still trading past state pension age is not £13,000. It is £12,570, the personal allowance, which the state pension is about to cross on its own for the first time. That is the story underneath the story.
My view is that most of the coverage of this has been aimed at the wrong audience. The government's exemption pledge, and the row over how well it will actually work, is about pensioners with no other income at all — a specific, shrinking group. If you are a sole trader, landlord, contractor or company owner-director who has kept working past state pension age, which a lot of Buzz's own clients have, none of that protection applies to you, because you already have other income. What applies to you is simpler and less discussed: a modest, predictable rise in your tax bill that is worth knowing about now rather than at Self Assessment time.
What was reported
The BBC reports that the full, flat-rate state pension — paid to those who reached state pension age after April 2016 — is on track to rise by £488 a year in April, to £250.70 a week, or £13,036.40 a year, based on the latest official earnings figure. The older basic state pension, for those who reached pension age before April 2016, is expected to rise by £374.40 to £192.10 a week, or £9,989.20 a year. The rise comes from the triple lock, which guarantees the state pension increases each April by whichever is highest of average wage growth, inflation, or 2.5%. The Office for National Statistics put average wage growth, including bonuses, at 3.9% for May to July 2026, down from 4.2% the previous quarter, and the state pension is expected to track that figure, coming in above inflation.
The significance is that £13,036.40 sits above the personal allowance of £12,570, which has been frozen since 2021. Almost 13 million people receive the state pension in the UK, and the BBC reports the government has recommitted to a Budget 2025 pledge that pensioners relying solely on the state pension will not be required to file a tax return or be chased for tax on the small amount by which they exceed the allowance. Pensions minister Torsten Bell said further detail on how that will work will come at the Budget. But analysis by pension consultants LCP, cited in the piece, found only around one in sixteen pensioners would actually benefit from the pledge, saving about £91 a year each, because most pensioners already have workplace or private pension income on top of the state pension and already pay tax on the combined total. LCP's Sir Steve Webb, a former Liberal Democrat pensions minister, called the government's plans on this point "a mess". Separately, the Resolution Foundation's Ruth Curtice described the triple lock itself as creating a "ratchet effect" in which pensioner living standards have grown three times faster than working-age pay over the past 20 years, while the Institute for Fiscal Studies warned the long-run cost of each successive rise, on top of £154bn already spent this year, is "substantial but very uncertain".
What the rise actually costs someone still trading: a worked example
Take a self-employed consultant, tradesperson or landlord who is past state pension age and has kept working. This is illustrative, but every figure in it is either the real published rate or simple arithmetic on the numbers above. This year, the full flat-rate state pension works out at £12,548.40 (£13,036.40 minus the reported £488 increase, before it lands). Say this person also has £6,000 a year in trading profit or rental income on top. Total income: £12,548.40 + £6,000 = £18,548.40. Against the £12,570 personal allowance, taxable income is £5,978.40, taxed at the 20% basic rate: £1,195.68 in income tax.
Next April, once the state pension rises to £13,036.40, the same £6,000 of other income gives total income of £19,036.40, taxable income of £6,466.40, and tax of £1,293.28. The difference is £97.60 a year — exactly the £488 increase taxed at 20%, because every extra pound of state pension for someone who already has other income is simply taxed at their normal marginal rate. There is no new form, no new registration and no special treatment. It is the same Self Assessment return, with a slightly bigger number on it.
Contrast that with someone whose only income is the state pension. Once it hits £13,036.40, they are £466.40 over the personal allowance, which at 20% is £93.28 of tax — strikingly close to the roughly £91 average saving LCP calculated the government's exemption pledge is actually worth to that group. That is the pledge in the story: sparing a small amount of tax, for a small group, on a small excess. It was never going to help someone with £6,000 of trading profit or rental income sitting on top, because that group is already inside the tax system and always was.
What it means depending on where you sit
Self-employed sole traders and contractors past state pension age. You already stopped paying Class 2 and Class 4 National Insurance on your profits once you reached state pension age, which is a genuine saving. Income tax still applies in full on your total income, though, and the state pension rise adds a small, predictable amount to what you owe. Build the extra roughly £100 a year (more if you are a higher-rate taxpayer, where the same £488 costs £195.20 at 40% instead) into your Self Assessment payments on account for 2027-28 rather than being surprised by a slightly larger bill. Our Self Assessment service already tracks this kind of change into your figures each year.
Landlords with rental income alongside the state pension. The same mechanism applies to you: rental profit and state pension are both taxable income, added together and taxed at your marginal rate. If your total income is close to £50,270, the extra £488 could conceivably be the amount that tips a small slice of income from the basic rate into the higher rate, which is worth checking rather than assuming away.
Company owner-directors still drawing dividends past state pension age. Dividends and state pension both count towards total income for personal allowance purposes, even though dividends are taxed under their own rate bands. A rising state pension uses up more of your personal allowance before your dividend income is calculated, which can push a small amount of dividend that would otherwise have been tax-free into the taxed band. Our tax planning service models this alongside salary and dividend decisions for exactly this reason.
Anyone with a retired relative whose only income is the state pension. This is the group the government's pledge is actually aimed at, and the one where the practical question is administrative rather than financial: will HMRC send a simple assessment letter, or expect a full Self Assessment return, for an excess of well under £100 a year? Do not assume a full tax return is suddenly required. Check what HMRC has actually sent before doing anything.
What is still uncertain, and when you will know
How the exemption pledge for state-pension-only pensioners will actually be delivered. Torsten Bell has recommitted to the principle, but the mechanism — whether it is an automatic write-off, a simplified letter process, or something else — has not been set out. The BBC reports the Chancellor will give further detail at the Budget.
The exact size of April's rise. The £488 figure is based on the latest earnings data and described as "likely" rather than confirmed. The final figure depends on the last piece of ONS wage data before the uprating calculation is finalised, so treat £13,036.40 as the strong expectation, not yet the certain outcome.
Whether the triple lock itself survives beyond 2029. Labour's manifesto commitment runs to 2029. The Resolution Foundation and IFS commentary in the piece is a signal that the policy's long-term cost is being actively debated, not that anything is changing before then.
Two things worth doing this week
- If you are past state pension age and still trading, add your state pension to your trading profit, rental income or dividends for this tax year and see where the total actually sits. Our take-home pay calculator will give you an accurate figure in a few minutes, and it is worth doing before April rather than after.
- If you file your own Self Assessment, build the extra tax from April's rise into your 2027-28 payments on account now, while there is time to plan for it. Get in touch about our Self Assessment service if you would rather this was tracked for you automatically each year.
Nothing here needs a decision today — April's rise has not landed yet, and the exemption mechanism will not be confirmed until the Budget. What is worth doing now is understanding which of the two groups in this story you actually belong to, because the coverage this week was almost entirely about the other one.