State pension warning as 650,000 hammered by 'retirement tax' from Sunday

Thousands of retirees will be required to pay income tax after a rise in the state pension pushed them over the qualifying threshold. The Government's increase of the full "new" state pension to £11,973 today (April 6) will push 650,000 people across the frozen income tax threshold of £12,570 in 2025/26, according to new analysis.

The 4.1% rise in the state pension, ensured by the "triple lock" which sees the entitlement rise by either inflation, wage growth or 2.5% depending which is highest, is estimated to push the 2.6 million pensioners already above the " limit to an even higher number. Sir Steve Webb, former Liberal Democrats MP and pensions minister who is now a partner at LCP pensions consultancy, carried out the analysis. He warned that a long-term freeze of the threshold, coupled with recent increases in the state pension, was pushing "millions of pensioners into the tax net for the first time since they retired". Income tax thresholds were frozen in 2021 by the Tory Government and Chancellor has committed to keeping it in place until at least 2027/28.

"The combined increases [of the state pension] in April 2023, 2024 and 2025 amount to a rise of nearly a quarter in the state pension while the tax threshold has remained frozen," Mr Webb told .

"As a result, a large number of pensioners are now income tax payers."

If retirees have other income, including from private pensions, they will be subject to a 20% income tax once they reach the tax threshold.

The perceived unfairness of the system has led to a campaign calling on the Government to raise the personal allowance limit to £20,000. The petition, which has received over 200,000 signatures, will be debated in Parliament on May 12.

Former Prime Minister Rishi Sunak labelled the phenomenon "Labour's retirement tax" during the general election campaign, telling voters that the Tories would dodge the issue through a scheme.

Jon Greer, head of retirement policy at wealth management firm Quilter, also warned that increases to the state pension meant "millions of pensioners are now teetering on the edge of a tax cliff".

He said: "With the Office for Budget Responsibility (OBR) forecasting a 4.6% triple lock increase in April 2026, the full new state pension would rise to £240.85 a week, just below the personal allowance of £12,570.

"That would leave retirees with barely any headroom before becoming liable for income tax, and by the following year, the state pension alone could push them over the threshold.

"This will create a strange scenario where pensioners may soon pay tax simply for receiving the full amount they've been promised."

A spokesperson for the Treasury said: "We are committed to help our pensioners live their lives with dignity and respect, which is why we have frozen fuel duty and increased the state pension to leave pensioner couples up to £88 better off a month. Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this parliament."