The State Pension Is Rising Again in 2027, But There’s a Catch

The key figure that determines next April's State Pension is now available.

On 15 September 2026, the Office for National Statistics (ONS) published the labour market overview, which shows the average earnings growth for May to July 2026 was 3.9%, including bonuses. In recent years, this figure has been the main driver of the annual State Pension increase.

For the roughly 1.1 million British pensioners living abroad, this news is especially important, because two things about the 2027 rise matter far more than the headline percentage. Here's the full picture.

How the rise is set

Each April, the State Pension increases under the triple lock. It rises by whichever of these three measures is highest:

• Inflation figures based on the previous September’s Consumer Price Index (CPI)

• The average earnings growth for May to July of the previous year

• A flat 2.5%

The earnings figure is released in September, and the September inflation figures come out in mid-October. The government then confirms the new rate at the Autumn Budget on 28 October, and it takes effect on 6 April 2027.

Based on the 3.9% earnings figure published by the ONS, and with inflation expected to be lower, the likely increase is about £488 a year . This would raise the full new State Pension from its current £12,548 a year to about £13,036.

The final figure will be confirmed at the Budget once September's inflation number is known. If the CPI is higher than earnings, the increase will be based on that instead.

Either way, an increase will be welcome news for pensioners. However, there is a catch.

The tax twist: the State Pension is about to become taxable

This next part may surprise some people. The personal allowance, which is the amount you can earn before paying income tax, has been frozen at £12,570 and will stay at that level until at least April 2031.

The full new State Pension is already just below this, at £12,548. So, for the first time, the 2027 rise will push the full State Pension above the tax-free allowance.

This means that from April 2027, anyone receiving the full new State Pension will have income above the personal allowance, even if they have no other income. This means a small amount of tax will be due on the excess.

The amount of tax will be small at first, but as the pension increases and the allowance stays the same, the taxable portion will grow each year.

In the 2025 budget, the government announced that pensioners whose only income is the State Pension won't be required to pay small amounts of tax via simple assessment from 2027/28 should the State Pension exceed the personal allowance.

Still, this is a real change: For the first time, the State Pension alone is moving from tax-free to taxable.

Why the rise may not reach you at all

This is especially important if you have retired abroad. Your State Pension only increases each year if you live in a qualifying country. These include the EEA, Switzerland, and countries with a reciprocal social-security agreement that allows for increases. If you retire elsewhere, your pension is frozen at the rate you first received, and it stays that way permanently.

This affects a large number of people. Of the roughly 1.1 million pensioners living abroad, hundreds of thousands get no increase at all because they live in a country without a qualifying agreement. In some long-frozen cases, people receive only a fraction of the current rate.

The frozen list includes popular destinations like Australia, Canada, New Zealand, Thailand, Malaysia, much of the Commonwealth, and the Gulf states, including the UAE. The list of countries where pensions are increased includes the EEA, Switzerland, and agreement countries such as the United States, the Philippines, and, which is often misunderstood, Turkey.

So, while UK pensioners and expats in places like Spain or France will get the 3.9% increase in April, an expat in Dubai, Sydney, or Bangkok with the same pension will not see any increase. We explain how this works, and what it can cost over a long retirement, in our article on the frozen State Pension trap.

What to do

For those who are eligible for the UK State Pension, here are some important things to check:

• Check whether your country increases the State Pension: This is the most important factor, and it’s a simple yes or no—your pension either rises with everyone else’s or it doesn’t. Use the official DWP list to confirm.

• If you're a full-rate pensioner, note the tax crossover: From April 2027, the State Pension edges above the personal allowance; it's minor at first but worth understanding, especially if you have other income.

• Consider this when deciding where to retire: A frozen pension slowly reduces your income over time, so it’s important to include this in your calculations when choosing a destination. Check where you can afford to retire abroad and how much you’ll need.

• Mind any gaps in your record: If your years abroad left National Insurance gaps, check your State Pension forecast and whether topping up makes sense.

If you’d like help understanding how the 2027 changes could affect your retirement, no matter where you plan to live, speak to Holborn Assets.