Nearly 9 million people of State Pension age will pay tax on retirement income this year
The latest figures from the Department for Work and Pensions (DWP) show there are now 13 million people of State Pension age across the country. The current official age of retirement is 66 and set to rise to 67 between 2027 and 2028.
The UK Government has confirmed that an estimated 8.51 million people of State Pension age paid income tax in the 2024/25 financial year and as the Personal Allowance will remain frozen at £12,570 until the start of the 2027/28 tax year, more pensioners are set to pay tax on their retirement income.
The UK Government has also confirmed it will honour the Triple Lock policy during this parliamentary term. However, this could see everyone on the full, New State Pension pushed over the tax threshold in just two years' time.
Under the Triple Lock policy, the New and Basic State Pensions increase each year in-line with whichever is the highest between the average annual earnings growth from May to July, CPI in the year to September, or 2.5 per cent. It is aimed at preventing the value of the State Pensions being whittled away by cost of living pressures.
The New and Basic State Pensions increased by 4.1 per cent in April, however, future forecasts from the Labour Government expect it to rise by 2.5 per cent over the next four financial years. Using these calculations, it puts the full New State Pension on track to be worth £12,578.80 in the 2027/28 financial year - £78.80 over the Personal Allowance.
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.
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