{"id":122235,"date":"2026-06-26T10:36:00","date_gmt":"2026-06-26T09:36:00","guid":{"rendered":"https:\/\/en.econostrum.info\/uk\/?p=122235"},"modified":"2026-06-26T10:34:50","modified_gmt":"2026-06-26T09:34:50","slug":"state-pension-taxed-before-paid-out","status":"publish","type":"post","link":"https:\/\/en.econostrum.info\/uk\/state-pension-taxed-before-paid-out\/","title":{"rendered":"Pension Shock: State Pension Could Be Taxed Before It\u2019s Paid Out"},"content":{"rendered":"\n

The Treasury is considering proposals that would see income tax deducted from the state pension before it is paid out<\/strong>, in a potential major reform that would shift pension payments towards a PAYE-style system<\/strong>, according to reports suggesting a change in how retirement income is processed in the UK.<\/p>\n\n\n\n

Proposed Change To Pension Tax Collection<\/h2>\n\n\n\n

Under the proposals being examined, tax could be deducted at source by the Department for Work and Pensions<\/strong><\/a> before pension payments reach recipients. This would represent a shift from the current system, where pensioners receive their full state pension and any tax due is collected separately through the tax system based on total annual income.<\/p>\n\n\n\n

The suggested model would bring pension income closer in line with PAYE arrangements<\/strong> used for employment income, where tax is automatically deducted before payment.<\/p>\n\n\n\n

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\u00a9 Shutterstock<\/figcaption><\/figure>\n\n\n\n

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Link To Personal Allowance Threshold<\/h2>\n\n\n\n

The discussions come as forecasts suggest the full state pension could rise above the \u00a312,570<\/strong> personal allowance during the 2027 to 2028 tax year<\/strong>. If this threshold is exceeded, part of the state pension could become taxable, increasing pressure on how payments are administered and taxed.<\/p>\n\n\n\n

One option under consideration includes applying a default 20% deduction at source<\/strong>, with adjustments made later depending on an individual\u2019s total tax position at the end of the tax year.<\/p>\n\n\n\n

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The Treasury is drawing up plans to tax the State Pension via PAYE for the first time in history.

As the pension is set to exceed the personal allowance next year, a 20% tax could be deducted at source for 12 million retirees.

Listen for more on tomorrow's episode of Business\u2026 pic.twitter.com\/53LxZMkD2y<\/a><\/p>— City A.M. (@CityAM) June 25, 2026<\/a><\/blockquote>