DWP state pensioners issued £3,000 tax warning with thousands set to be affected

A warning has been issued to as more risk paying tax on their pots after April's £470 a year increase.

Finance expert Shimeon Lee, a policy analyst at the TaxPayers' Alliance, said the Triple Lock and frozen thresholds could see many more older Brits face a "nasty surprise tax" over the coming year.

Under the Triple Lock promise, the state will rise each April by either inflation (based on the previous September's figure), wage growth (the average increase between May and July), or 2.5% - whichever is the highest.

In April, the state pension rose by 4.1%, taking the weekly rate for someone claiming the new state pension to £230.20. Over a year, this equates to a £470 rise going from £11,502 to £11,975. The hike saw weekly payments for the basic state pension rise to £176.45, or £9,175 annually.

Warning , Lee said: "Those with incomes under the personal allowance generally do not pay tax on their income. But because of these frozen tax thresholds, which have been frozen since 2021, more and more people are being dragged into paying tax. That includes more people being pulled into paying the higher rate of income tax.

"A lot of pensioners are also now being dragged into paying tax at all, simply because their state pension rises each year due to the triple lock. The threshold stays the same, but the pension goes up, meaning more and more pensioners are crossing the tax threshold."

He added: "Frozen tax thresholds affect the poorest people in the country the most, and they can be a really nasty surprise for those who did not expect to be paying tax and who are already struggling to make ends meet.

"Now, the personal allowance, if it had risen with inflation, should be around £15,500. That’s a huge difference. It means people are paying tax on an additional £3,000 of income.

"If you take the income tax rate of about 20%, plus National Insurance of around 8%, that gives you a tax rate of roughly 28%."

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Around 350,000 more pensioners will pay tax this year compared to 2024/25, according to analysis by former pensions minister Steve Webb. Webb, who is now a partner at pension consultancy LCP, said 650,000 retirees will be paying income tax on their state pension alone in this tax year.

Currently, the Personal Tax Allowance - which is the amount of income you earn every year without having to pay tax on it - sits at £12,570.

This, like other tax thresholds, is set to remain frozen until April 2028. Under the personal allowance, you can earn up to £12,570 without paying tax on it, and any amount over you do.

For example, if you earn £50,270 - this is the highest amount you can earn under the 20% tax band - you pay 20% tax on £37,500 of it. The personal allowance also includes income from your .

This means if your pension income is over £12,570 then you will pay tax on the amount above it. For example, if your overall pension earnings are £14,000 a year - then you will pay 20% tax on £1,430 over it.

According to data released by LCP in June, around 8.51 million older Brits paid income tax on their pensions in 2024/25, up 660,000 from 7.85 million from last year.

In 2020/21 - when the pension age rose to 66 years - there were 6.47million people paying tax on their pensions. This means in the last three years 2million more pensioners were dragged into paying tax on the income they received from both the state and private pensions.

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