New State Pension April uprating could see more older people pay tax in retirement this year
The New and Basic State Pensions will rise by 4.1 per cent from April 7 while additional elements are set to increase by 1.7 per cent. Under the Triple Lock, 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 (4.1%), CPI in the year to September (1.7%), or 2.5 per cent.
The Labour Government has pledged to honour the Triple Lock for the next five years, however, the Personal Allowance will remain frozen at £12,570 until the start of the 2028/29 financial year. The full New State Pension is currently worth £11,502 in the 2024/25 tax year and will rise to £11,973 in 2025/26 - this leaves just £1,068 in the current year before the tax threshold is exceeded and £597 in 2025/26.
READ MORE: Martin Lewis urges people to check State Pension as thousands boost retirement payments
The most important thing to remember is that someone on the full New State Pension will not pay income tax, but older people with additional income through employment, private or workplace pensions, might need to pay tax.
For most people, this would be paid automatically through PAYE on employment and tax on private pensions. Anyone who doesn’t pay tax automatically pays tax through deductions, would receive a tax bill from HMRC the following summer to be paid by January in the next year.
There has been a fair bit of speculation on the number of pensioners who will pay tax, but currently of the 12.9 million State Pensioners across the UK, nearly 8m (62%) already pay some tax in retirement, so this isn’t something new.
And with auto-enrolment in the workplace - now in its 13th year - more people will benefit from increased income in retirement and will probably pay tax - which will typically be deducted from their private pension.
It's important to understand any tax to be paid in retirement is based on the amount of income earned above the threshold - not the total additional income. For example, if someone has a total annual income of £13,000, they will pay tax on £430 - which is the amount above the £12,570 threshold.
Those affected would then have to pay HMRC 19 per cent of their income above the threshold, which is the starter rate of tax in Scotland (20% in England).
Income rates and bands - Scotland
£12,571 to £14,876 - 19%, Starter rate
£14,877 to £26,561 - 20%, Scottish basic rate
£26,562 to £43,662 - 21%, Intermediate rate
£43,663 to £75,000 - 42%, Higher rate
Income rates and bands - England
£12,571 to £50,270 - 20%
£50,271 to £125,140 - 40%
over £125,140 - 45%
State Pension payments 2025/26
The DWP has publish the full list of State Pension and benefit uprated payments on GOV.UK here.
Full New State Pension
Weekly payment: £230.25 (from £221.20)
Four-weekly payment: £921 (from £884.80)
Annual amount: £11,973 (from £11,502)
Full Basic State Pension
Weekly payment: £176.45 (from £169.50)
Four-weekly payment: £705.80 (from £678)
Annual amount: £9,175 (from £8,814)
To check your own future State Pension payments, use the online forecasting tool on GOV.UK here.
