Recent analysis has raised concerns that thousands of retirees will soon be forced to pay income tax on their state pension due to the rising pension payments set to come into force in April 2025.
This situation represents the continuation of the growing trend of retirement tax, where an increasing number of retirees are pushed into paying tax simply because their state pension amounts are climbing.
According to GBNews, this will significantly impact the financial security of many pensioners, pushing them beyond the tax threshold and placing additional strain on those already facing a challenging retirement.
State Pension Increase Pushes More Retirees Into Tax Bracket
The full “new” state pension has increased to £11,973 for the 2025-26 period, bringing an estimated 650,000 more pensioners across the income tax threshold. With this increase, the state pension is now dangerously close to the £12,570 tax-free personal allowance, which has been frozen until at least 2027-28.
This increase is contributing significantly to the rise in the retirement tax, affecting a growing number of retirees.
While the state pension is rising due to the government’s triple lock mechanism, which ensures annual increases based on inflation, wage growth, or a minimum of 2.5%, the personal allowance remains frozen.
This “freeze” has been in place since the previous Conservative government, and Chancellor Rachel Reeves has committed to maintaining it.
Currently, more than 2.6 million people receive a state pension above the personal allowance, but the 4.1% rise in April 2025 will push many more retirees into paying tax. The result is a growing number of pensioners now liable for tax, with millions more expected to follow in the next decade.
Analysis: The Growing Tax Burden on Retirees
Sir Steve Webb, a former Pensions Minister now working with pension consultancy LCP, explained that the long-term freeze in the tax threshold, paired with significant increases in the state pension over recent years, has pulled millions of pensioners into the tax net for the first time since their retirement.
He further stated,
The combined increases in April 2023, 2024, and 2025 amount to a rise of nearly a quarter in the state pension while the tax threshold has remained frozen.
In fact, separate analysis from The Telegraph revealed that around 249,000 retirees were already paying at least £1,000 in tax on their state pension before April 6. Furthermore, 10,700 individuals were paying over £2,000 in tax. This is an example of the expanding retirement tax burden many retirees are facing.
Potential Future Impact on State Pensioners
The state pension is currently paid to almost 13 million retirees, with around 4.2 million receiving the new state pension, introduced in 2016. The rest of the pensioners receive the old state pension, with the full “basic” element rising to £9,175 annually.
Looking ahead, Jon Greer from wealth management firm Quilter noted that millions of pensioners are now on the verge of what he calls a “tax cliff.” He said,
Millions of pensioners are now teetering on the edge of a tax cliff as the state pension creeps ever closer to the frozen personal allowance.
The Office for Budget Responsibility has forecasted that in April 2026, the state pension could rise by 4.6% under the triple lock, bringing the full new state pension to £240.85 per week, just below the personal allowance of £12,570. Jon Greer continued,
That would leave retirees with barely any headroom before becoming liable for income tax. By the following year, the state pension alone could push them over the threshold.
This scenario will create a situation where pensioners may soon pay tax simply for receiving the full amount they’ve been promised, a situation many are not prepared for. This is a key component of the expanding retirement tax problem facing the UK’s pensioners.
A Treasury spokesperson responded by stating :
We are committed to helping our pensioners live their lives with dignity and respect, which is why we have frozen fuel duty and increased the state pension to leave pensioner couples up to £88 better off a month.
