Pensioners could be drawn into paying tax (Image: Bloomberg, Bloomberg via Getty Images)
Pension experts have sounded the alarm for those who receive a from the Department of Work and Pensions, cautioning that tax implications could be on the horizon. With inflation having soared in previous years, the triple-lock mechanism has ensured that the basic and new state pensions rise substantially – with a notable 10.1% increase in 2023 when inflation hit double digits.
Although the uplift has since moderated to 6.7% last year and an anticipated 1.7% in April 2025, this sustained growth may bring tax woes for pensioners as the personal allowance has remained fixed at £12,570 since 2021.
This figure represents the threshold before income tax applies, and those receiving the new now draw £230.25 weekly or £11,973 annually, skimming just under the limit. However, industry specialists from Shepherds Friendly have warned: “With pensions expected to surpass the frozen tax-free allowance limit next year, which will remain unchanged by the government until 2028, more retirees will be pushed into the tax-paying bracket. As a result, pensioners should begin to take into account that they may soon need to pay income tax on their pensions should no changes be made to current status-quo.
“While the triple-lock has been helpful in ensuring retirees’ incomes keep up with the , taxing pensioners could have significant financial implications, particularly for those who rely heavily on their pensions to cover essential living costs and make ends meet. To help with retirement costs, Pension Credit can help those of age on lower incomes.
The current pension comes close to the personal tax allowance (Image: Alamy/PA)
“For example, single pensioners can get their weekly allowance topped up to £218.15, or £332.95 as a couple, both of which are below the tax-free allowance threshold. Furthermore, those still working part-time or receiving self-employed income might consider making additional contributions to a private pension to help with costs once they retire from work completely.
“For those looking to retire in the near future, they should consider how their income can be built up by saving into a tax-free ISA, growing their savings through investments where possible, and utilising workplace pension schemes to secure their future income during retirement. Due to the increasingly ageing population and the context of economic uncertainty, it can be hard to predict what the future of the will look like, so it’s always best to have a financial back-up plan in place where possible.”