State pensioners warned £130 will be 'taken from their monthly payments'

James Rodger
·2-min read
State pensioners warned £130 will be 'taken from their monthly payments'
-Credit: (Image: Reach Publishing Services Limited)


Thousands of pensioners face an unexpected HMRC tax bill from next year. Analysis shows the state pension will breach the current £12,570 tax-free allowance within three years, creating an unprecedented situation where pensioners must return some of their state pension to HMRC and the Department for Work and Pensions (DWP).

900,000 more people will exceed the Personal Allowance this year, according to Spencer Churchill. Spencer Churchill have estimated that around 900,000 more people will exceed the Personal Allowance threshold of £12,570 during the current financial year (2024/25). The full New State Pension is set to rise from £221.20 to £230.30 per week, which equates to £921.20 every four weeks.

This means that annual payments will increase from £11,502 to £11,975.60 over the 2025/26 financial year. Similarly, those on the full Basic State Pension will see their weekly payments go up from £169.50 to £176.45, or £705.80 every four-week payment period.

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This will result in annual payments rising to £9,175.40 over the 2025/26 financial year. It's important to remember that additional State Pension elements, including deferred State Pensions, will increase by the September CPI figure of 1.7 per cent.

Adam Pope from Spencer Churchill said: "Freezing income tax thresholds for pensioners is worrying and could really affect their financial situation. Almost two million pensioners are expected to be hit by this in the next four years. Over 60 per cent of pensioners are paying income tax, up from about 50 per cent in 2010."

By the end of the decade, in the tax year 2029/2030, retirees could see a minimum tax bill of £130 taken from their monthly payments as their payment rises but the the income tax threshold remains the same. Jon Greer at Quilter said: "The reality is that we are soon set to be in the perverse situation where pensioners might have to start paying back their state pension to HMRC because of frozen allowances."

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