Full state pension is £1,300 a yr larger beneath triple lock moderately than simply inflation

Older people getting the full rate state pension would be £1,300 a year worse off if it had been increased according to inflation not the triple lock, a new study shows.

The headline state pension is rising by an inflation-busting 4.8 per cent to £12,548 a year this month, but would stand at just £11,268 if it had been hiked only in line with prices since 2016.

People retiring over the past decade who paid enough National Insurance now get a flat rate state pension, which is meant to rise every year under the triple lock – the highest of inflation, average earnings growth or 2.5 per cent.

‘The new state pension has risen under the triple lock since 2016, with a Covid driven year’s break for the tax year 2022-23,’ says Vanguard, which crunched the figures.

‘Those receiving the full new state pension are almost £1,300 better off thanks to the triple lock, compared to if there was just an inflation link in place.

‘This is good news for retirees, as the state pension is key to most people’s retirement plans and will mean much of their basic expenditure will be covered with this guaranteed income.’

CPI inflation is currently running at 3 per cent, and it was 3.8 per cent in the month that decided the triple lock increase last autumn – but still undershot earnings growth, which was 4.8 per cent at the relevant time.

Since 2016, wages have determined the state pension rise six times and CPI inflation three times, while the 2.5 per cent backstop has been deployed twice.

Wages would have been used in 2022 as well, but the last Tory Government sparked fury by scrapping the earnings element that year, because it was temporarily distorted to more than 8 per cent due to the pandemic.

Inflation used to decide the annual state pension increase before the Tories introduced the triple lock in 2011/12 to ensure pensioners got a decent boost every year. 

The current Government has promised to keep the triple lock for the whole of this parliament – but although it is popular with older voters, critics warn it is unaffordable in the long run.

Financial experts have also pointed out that if there is a trade-off which means if the state pension age has to rise to maintain the higher payouts, that will be unfair to poorer people who tend to have shorter life expectancy.

Before 2016 people retired under the old two-tier state pension system, made up of a basic rate plus top-ups called S2P or Serps if those were earned earlier in life.

The basic rate, now £184.90 a week, is also raised according to the triple lock while the top-ups move up in line with inflation.

> The increased state pension is here: How much will YOURS rise by?

Vanguard says the current full state pension of £12,548 is just shy of the personal allowance of £12,570, the threshold at which people start having to pay income tax.

‘The threshold at which income tax is paid has been frozen since 2021, meaning 2.1million more pensioners paid income tax in 2025/26 tax year,’ it says.

‘The state pension has increased from 74 per cent of the allowance to 95 per cent in 2025/26. With the state pension now £12,548 next year, that is 99.8 per cent of the personal allowance.

‘So pensioners would need just £22 of other income before they start paying income tax compared to £3,230.80 of other income in 2021/22.’

How to protect retirement income from tax

Vanguard says a considered approach to tax and retirement is needed to make sure you keep as much of your money as possible, and offers the following tips.

1. Only draw what you need

With the state pension now using most of the personal allowance, drawing excess income from private pensions could lead to unnecessary tax and faster depletion of your savings.

Leaving surplus funds in your pension allows for continued tax-free growth and avoids triggering avoidable tax on savings interest.

As a reminder you can typically withdraw up to 25 per cent of your pension tax-free, and this doesn’t have to be all at once. It can be done as and when you need the income.

2. Make sure you still make use of tax wrappers

With most of your personal allowance being taken up by the state pension, making sure your other assets are protected from tax is even more important.

Make sure any shares, cash or other investments are within an Isa rather than general accounts.

3. Diversify income sources

You may have savings accounts, general investment accounts, an ISA and a pension. For most people, taking money out of investment accounts and cash savings should be a first step, leaving money to grow tax free for longer within Isas and pensions.

4. Plan as a couple

If you’re in a couple, coordinating finances with your partner lets you double up on allowances like personal, Isa, and capital gains tax allowances, reducing your overall tax bill. You can also transfer assets between spouses or civil partners to take advantage of the lower taxpayer’s rate.