More than 320,000 retired individuals across the UK faced an income tax bill of at least £1,000 on their state pension during the 2025 tax year, according to new analysis.
A Sharp Rise in Pensioner Taxation
The number of pensioners paying this level of tax surged by 71,000, rising from 249,000 in previous years. This significant increase highlights a growing trend of retirees being pulled into the tax system, largely due to a combination of rising pension payments and frozen tax thresholds.
The issue is set to intensify from April 2026, when the full new state pension is due to increase to £12,548 annually. This new rate will place it a mere £22 below the current Personal Allowance—the point at which income tax becomes payable—which is frozen at £12,570.
Why Are So Many Pensioners Paying Tax?
Despite the new state pension being just under the allowance, approximately 3.2 million pensioners currently receive payments that exceed the tax-free threshold. This situation arises from several key factors:
- Additional pension income: Many have topped up their state pension through schemes like the State Earnings-Related Pension Scheme (Serps) or other workplace pensions.
- Deferral bonuses: Some retirees chose to defer taking their state pension, which results in higher weekly payments when they eventually claim.
- Other income sources: Part-time work, rental income, or private pension draws can push total income over the Personal Allowance.
Mark Cunningham, a partner at tax consultancy Blick Rothenberg, warned of the creeping impact of fiscal drag. “Many pensioners will be pulled into higher tax bands simply through the state pension rising whilst the tax thresholds remain static,” he said. “More pensioners will face unexpected tax bills in the coming years. It’s important that retirees consider their tax position to avoid surprises.”
Government Response and Future Outlook
A spokesperson for the Department for Work and Pensions defended the government's approach, stating: “Pensioners also benefit from the highest Personal Allowance among the G7 while our commitment to the Triple Lock means 12 million pensioners will receive an increase of up to £470 a year.”
However, this defence does little to alter the fundamental arithmetic facing retirees. With the Personal Allowance frozen until at least 2028, each annual increase delivered by the Triple Lock—which raises the state pension by the highest of inflation, average earnings growth, or 2.5%—will drag hundreds of thousands more pensioners into paying income tax for the first time, or push them into a higher tax bracket.
The convergence of the state pension and the tax threshold creates a perfect storm, meaning that even a modest private pension or savings interest could soon trigger a tax liability for millions. Financial advisors are urging pensioners to proactively review their income sources and understand their potential tax obligations to prevent unforeseen demands from HM Revenue and Customs.
