Given the scale of the UK’s fiscal and demographic challenges, this Budget was an opportunity to place the State Pension system on a more sustainable footing. Instead, the government once again reaffirmed its commitment to the unaffordable and unfair triple lock, with the State Pension set to rise by 4.8 percent in April next year.
Overall State Pension spending
The OBR quietly released updated long-term projections for pensioner spending alongside the Budget. Although they attracted little attention, the figures paint a bleak picture for the sustainability of the public finances.
According to the OBR:
- Total pensioner-related spending, which includes the State Pension, Pension Credit, Housing Benefit for pensioners, and the Winter Fuel Payment, is set to reach £177.1 billion in 2030–31, a 14% real-terms increase from around £165.3 billion in 2025–26.
- Spending on the State Pension alone is forecast to rise by 15% in real terms, from £146.2 billion in 2025–26 to £163.3 billion in 2030–31.
Alternative uprating mechanisms
Using OBR assumptions, IF estimates that replacing the triple lock with inflation-only uprating would save:
- £5.2 billion per year by 2028–29
- £11.3 billion per year by 2030–31
- £26.7 billion per year by 2034–35
Switching instead to earnings-only uprating would still deliver substantial savings:
- £2.3 billion per year by 2028–29
- £7.6 billion per year by 2030–31
- £12.4 billion per year by 2034–35
The savings from these changes could help to fund increases to Pension Credit to protect the most vulnerable, reduce the deficit, and increase investment in youth services.
The State Pension income tax exemption
After the Budget, the government also announced that pensioners who only receive income from the State Pension will not be required to pay income tax. Chancellor Rachel Reeves was forced to provide this clarification due to the interaction of the triple lock and the three-year extension of the income tax threshold freeze. Towards the end of this decade, the annual State Pension will exceed the personal allowance of £12,570.
While the policy details are yet to be finalised, IF’s modelling suggests that this exemption will impose a growing fiscal cost:
- £143.8 million in 2030–31
- £256.7 million in 2031–32
If the income tax threshold freeze continues beyond 2031, the annual cost could rise to around £1.1 billion by 2035–36.
IF Senior Researcher Conor Nakkan said:
“These figures show very clearly where the government’s priorities lie. This Budget could have helped rebuild the public finances while addressing the structural challenges facing younger people. Instead, the government has chosen to increase the tax burden on younger workers in order to expand benefits for pensioners, including the three million who already live in millionaire households. At some point, they will have to recognise that this approach is neither fair nor sustainable.”
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Notes to editors
Conor Nakkan is available for interview. Please email [email protected].
Data sources:
- OBR Economic and Fiscal Outlook (November 2025)
- OBR Long-term economic determinants (March 2025)
- DWP Pensioners’ Incomes: financial years ending 1995 to 2024
- DWP Benefit expenditure and caseload tables 2025
- DWP benefits statistics (2019-2025)
The model used to produce these figures can be provided upon request.