Millions of pensioners face shock tax blow in 2025 after ‘freeze’ | Retirement | Finance

More than eight million people in the UK are set to pay tax on their retirement income this year. Due to a freeze on Personal Allowance many pensioners will be taxed on a certain amount of cash until at least the start of 2028

The Department for Work and Pensions (DWP) has revealed that there are currently 13 million people of State Pension age across the nation. The official retirement age is presently 66, with plans to increase it to 67 between 2027 and 2028.

The Daily Record reports that 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.

With the Personal Allowance set to remain frozen at £12,570 until the end of the 2027/28 tax year, more pensioners are expected to pay tax on their retirement income.

The Triple Lock policy will be honoured by the UK Government during this parliamentary term, Downing Street says. However, this could result in everyone on the full, New State Pension exceeding the tax threshold within just two years.

For many people who have worked hard at jobs for years and years, the news would come as a harsh blow.

The Triple Lock policy ensures that the New and Basic State Pensions increase each year in line with whichever is highest: the average annual earnings growth from May to July, Consumer Prices Index (CPI) in the year to September, or 2.5%. This policy aims to prevent the value of the State Pensions from being eroded by cost of living pressures.

In April, the New and Basic State Pensions increased by 4.1%. However, future forecasts from the Labour Government expect it to rise by 2.5% over the next four financial years.

Based on these calculations, the full New State Pension is projected to be worth £12,578.80 in the 2027/28 financial year – £78.80 above the Personal Allowance.

Although the taxable amount of State Pension may appear relatively small – tax is only paid on the amount exceeding the Personal Allowance – older individuals with additional income sources could find themselves shelling out more money to settle a tax bill if it’s not automatically deducted from private or workplace pensions through PAYE.

Online guidance available on GOV.UK about who might need to pay tax on their pension also provides a useful tool to calculate potential tax payments and outlines various methods for doing so.

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% 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.