Millions more on State Pension to be hit with bill this year

The Department for Work and Pensions (DWP) has revealed that there are now 13 million people of State Pension age across the UK. The official retirement age currently stands at 66, with plans to increase it to 67 between 2027 and 2028.

Data from HM Revenue and Customs (HMRC) suggests that around 8.7 million pensioners are expected to pay income tax on their retirement income in 2025/26. This represents an increase of approximately 420,000 compared to the previous year (2024/25), and a rise of 1.85 million from a decade ago (2015/16), reports the Daily Record.

These figures have emerged following the decision to freeze the Personal Allowance thresholds at £12,570 until April 2028. Meanwhile, the full annual New State Pension reached £11,973 in 2025/26, pushing hundreds of thousands more pensioners into the income tax bracket.

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The Government has also confirmed its commitment to uphold the Triple Lock policy during this parliamentary term. However, this could result in everyone receiving the full, New State Pension exceeding the tax threshold within just two years.

David Brooks, head of policy at leading independent consultancy Broadstone, said: "We would expect a growing number of pensioners to be liable for income tax as the country's demographic changes due to our ageing population.

"Fiscal drag, however, is also bringing hundreds of thousands more pensioners into paying Income Tax bracket every year as the frozen Personal Allowance thresholds combines with the Triple Lock-protected State Pension. While perhaps personally frustrating for many pensioners, it reflects the nature of inflation linked occupational pensions and a Triple-locked State Pension that continues to rise."

He went on to say: "The government will be called on again to protect pensioners from this impact but with seemingly few ways to control the rise in pensioner incomes, taxation is the only tool left. We should also expect the income tax from pensioners to rise in coming years as more income will be taken from pensions. Taking pension income is the key way to protect pension benefits from the impact of the Inheritance Tax Rules on unspent pension funds due to come in from April 2027."

The Triple Lock mechanism ensures the New and Basic State Pensions grow annually in line with whichever proves highest amongst average yearly earnings growth from May to July, September's CPI figure, or 2.5 per cent. This policy aims to stop the State Pension's value being eroded by rising living costs.

Both the New and Basic State Pensions jumped by 4.1 per cent last April, though Labour's future projections anticipate a 2.5 per cent increase across the following four financial years.

Based on these figures, the complete New State Pension is set to reach £12,578.80 during the 2027/28 financial year - exceeding the Personal Allowance by £78.80. While the amount of State Pension to be taxed may seem relatively small - tax is only paid on the amount over the Personal Allowance - older people with other income streams could find themselves having to part with more cash to pay a tax bill - if it's not automatically deducted from private or workplace pensions through PAYE.

Online guidance at GOV.UK on who might need to pay tax on their pension also includes a handy tool to calculate how much tax someone might need to pay, and the different ways this can be done.

The latest State Pension Triple Lock predictions show the following projected annual increases:

• 2025/26 - 4.1%, the forecast was 4%
• 2026/27 - 2.5%
• 2027/28 - 2.5%
• 2028/29 - 2.5%
• 2029/30 - 2.5%

State Pension payments 2025/26

Full New State Pension

• Weekly payment: £230.25
• Four-weekly payment: £921
• Annual amount: £11,973

Full Basic State Pension

• Weekly payment: £176.45
• Four-weekly payment: £705.80
• Annual amount: £9,175

Future new State Pension forecasts

Under a 2.5 per cent increase, the full New State Pension will be worth:

• 2026/27 - £236 per week, £12,227.30 a year
• 2027/28 - £241.90 per week, £12,578.80 a year

What is taxed

Guidance on GOV.UK states: "You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates.

Your total income could include:

• the State Pension you get - Basic or New State Pension
• Additional State Pension
• a private pension (workplace or personal) - you can take some of this tax-free
• earnings from employment or self-employment
• any taxable benefits you get
• any other income, such as money from investments, property or savings

Check if you have to pay tax on your pension

Before you can check, you will need to know:

• if you have a State Pension or a private pension
• how much State Pension and private pension income you will get this tax year (April 6 to April 5)
• the amount of any other taxable income you’ll get this tax year (for example, from employment or state benefits)

You cannot use this tool if you get:

• any foreign income
• Marriage Allowance
• Blind Person’s Allowance

Use this online tool at GOV.UK to check if you have to pay tax on your pension.

The full guide to tax when you get a pension can be found on GOV.UK here.