State Pension uprating in April may affect how much tax older people pay in retirement

Linda Howard
·3-min read

The New and Basic State Pensions will rise by 4.1 per cent from next April 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.

However, a recent video posted on social media claims HM Revenue and Customs (HMRC) is warning State Pensioners of a “£130 deduction to the monthly State Pension” which is not true. The Labour Government has pledged to honour the Triple Lock for the next five years and that may be where the confusion lies.

READ MORE: People on State Pension or DWP benefits may see delay to new payment rates due next April

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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.

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 12.7 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 12 years old - 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 will publish the full list of State Pension and benefit uprated payments shortly, so far they have only confirmed the New and Basic State Pension rates, not additional elements (which are rising by 1.7%).

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.

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