State pension warning issued as Britons face £93 tax bill (Image: Getty)
Pensioners could face a £93 tax burden on their state pension from April next year, financial experts have warned. It comes as the full fixed rate state pension is expected to increase by 3.9% to more than £13,000 a year, according to the latest official income figures published on Tuesday.
This is linked to the triple lock guarantee, which ensures the state pension increases by either average wage growth, inflation or 2.5% – whichever is higher – and wages are currently tracking the lead. Jason Hollands, managing director of wealth management firm Evelyn Partners, said the annual increase of £488 would push state pensioners into tax-paying territory as the tax-free threshold was frozen at £12,570 until 2031.
John Healey is expected to outline the taxation of state pensions in the upcoming Budget. (Image: Getty)
“The increase in SP means pensioners who have no income other than the State Pension and are on the full flat rate could be liable for income tax of £93 in 2027/28.
“The new annual payments of £13,036.40 would exceed personal income tax relief by just over £466, and at the basic rate of income tax this could mean facing HMRC by just over £93.”
Weekly payments are set to rise from £241.30 to around £250.70, and the annual Full Fixed State Pension for those reaching SP age after April 2016 will be £13,036.
However, Mr Hollands said the burden was “a bit up in the air” as Labor could decide to unfreeze the threshold. The party has also suggested it could make concessions for those who rely solely on the state pension as a source of income.
He added: “This issue is in limbo for several reasons. One is that the government has hinted that those receiving SP only will not be charged income tax, although no details or confirmation of this policy have been forthcoming. If confirmed, it could be seen as unfair by those who have little personal income and are forced to pay tax.
“Secondly, Prime Minister Andy Burnham has suggested that he – in an ideal world – would like to unfreeze personal benefits to exempt more people from paying tax, although this seems unlikely in April next year given the current financial climate.”
When Rachel Reeves was chancellor, the Labor Party promised that pensioners who rely solely on the state pension would not be required to fill out a tax return.
Pensions minister Thorsten Bell told the BBC on Tuesday: “In line with the commitment made in Budget 2025, pensioners who are just above the personal allowance will not pay small amounts of tax in this parliament, which we know is an administrative burden.”
They said this will be explained in more detail in the upcoming budget.
Mr Hollands said the additional strain on public finances could lead to an increase in the retirement age, affecting people aged 55 and under.
“With reform or abolition of the triple lock appearing to be seen by all major parties as politically toxic, the crisis in public finances could well see the next increase in the SP age – from 67 to 68 – brought forward from the planned 2044/46 period, in an attempt to solve the crisis in the affordability of public pensions.
“This could catch the 55-year-old and younger cohort by surprise, who may have to work longer or rethink retirement security.”
The retirement age is currently being reviewed. The state pension age is rising from 66 to 67 between May 2026 and April 2028, and the legislation calls for an increase from 67 to 68 between 2044 and 2046, although this could be brought forward.
