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Thousands more retirees will now be hit with income tax bills on their state pension as a new round of increases comes into force today, new analysis has revealed.
From today (Sunday), the full “new” state pension will rise to £11,973 a year, putting it dangerously close to the frozen tax-free personal allowance of £12,570.
As reported in The Telegraph, the complex structure of Britain’s pension system already sees 2.6 million retirees receiving more than the personal allowance, but this latest 4.1 per cent rise in payments is expected to push a further 650,000 pensioners into the tax bracket by 2025-26, according to calculations by Sir Steve Webb, a former pensions minister and now a partner at consultants LCP.
He said: “The long-term freeze in the tax threshold, combined with some substantial cash increases in the state pension in recent years, has brought millions of pensioners into the tax net for the first time since they retired.”
The “new” state pension may be rising by 4.1%, but because the personal allowance isn’t budging until at least 2027-28, more and more retirees will find themselves paying income tax — despite years of National Insurance contributions.
The increase is thanks to the triple lock, which boosts the state pension each year by the highest of inflation, wage growth or 2.5%.
But with the tax threshold frozen, the two policies have collided. Yet Labour Chancellor Rachel Reeves has said the freeze will stay — meaning even more pensioners will be hit in the coming years. Ex-PM Rishi Sunak slammed the situation as “Labour’s retirement tax”.
Figures from The Telegraph show 249,000 retirees were already paying at least £1,000 a year in tax on their state pension, and 10,700 paid more than £2,000 — even before the latest rise.
Right now, nearly 13 million Brits receive the state pension. About 4.2 million are on the “new” version, brought in back in 2016. The rest are on the old scheme, which now pays £9,175 a year — but many get extra from top-ups like Serps, which can bump annual payments up to £11,356.
And those who delay claiming their pension can get even more — pushing them even closer to the tax line.
Jon Greer, of financial firm Quilter, warned: “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.”
He added: “With the Office for Budget Responsibility forecasting a 4.6% triple lock increase in April 2026, the full new state pension would rise to £240.85 a week, just below the personal allowance.”
“That would leave retirees with barely any headroom before becoming liable for income tax, and by the following year, the state pension alone could push them over the threshold.”
“This will create a strange scenario where pensioners may soon pay tax simply for receiving the full amount they’ve been promised.”
An HM Treasury spokesperson insisted: “We are committed to help 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. Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this parliament.”
But tax expert James Wright hit back, telling The Post: “Who are Labour kidding? With the tax threshold staying frozen and the triple lock continuing to deliver bumper rises, many pensioners now face the bleak reality of having to pay tax simply for receiving the pension they were promised.”
THE STATE PENSION TRAP:
- Full new state pension (from April 7): £11,973/year
- Tax-free personal allowance: £12,570 (frozen until 2027-28)
- Pensioners dragged into tax net (2025-26): 650,000
- Already paying £1,000+ tax: 249,000 retirees
- Triple lock forecast for 2026: +4.6%
Read the full story here.
Main Image: For illustration purposes only. Image AI generated.
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