The full new State Pension is on course to rise above the frozen personal tax allowance by roughly £500 next year, according to International Adviser. That shift would leave people whose only income is the State Pension facing an income tax bill for the first time.
The reason is simple arithmetic. The personal tax allowance, the amount you can earn before income tax applies, has been held at £12,570. The State Pension keeps climbing under the triple lock. When the pension overtakes the allowance, the excess becomes taxable.
Here is what the projection means, based on the reporting, and where the gaps in the detail sit.
Why is the State Pension breaching the personal tax allowance?
Two policies are pulling in opposite directions. The triple lock pushes the State Pension up each year by the highest of inflation, average earnings growth, or 2.5%. Meanwhile, the personal tax allowance has been frozen at £12,570 rather than rising with prices.
Because the allowance stands still while the pension rises, the two figures are converging. International Adviser reports that the full new State Pension is expected to cross the £12,570 threshold and sit around £500 above it next year. That £500 of income above the allowance would be taxable.
How much tax could pensioners pay?
The exact tax charge depends on the final pension uprating and any Budget changes, which the source does not confirm in figures beyond the headline £500 breach. As a guide to how the mechanism works:
- Personal allowance: £12,570, currently frozen.
- Projected State Pension excess: around £500 above the allowance next year, per International Adviser.
- Basic income tax rate: 20% applies to income above the allowance for most people.
So, if the full new State Pension ends up about £500 over the £12,570 line and 20% tax applies to that excess, a pensioner with no other income could owe roughly £100 in income tax on their State Pension alone. The precise amount is not stated in the source and would depend on the confirmed uprating figure.
Who would be affected?
The people most exposed are those whose income is made up almost entirely of the full new State Pension, because they have little or no headroom under the allowance. Pensioners with additional income, such as a workplace pension, private pension, or earnings, would already be more likely to pay tax and may see their bill rise as the State Pension grows.
Those receiving less than the full new State Pension, or the older basic State Pension, may still stay below the £12,570 allowance depending on their total income.
What can pensioners do about it?
The source does not set out a specific action list, so treat the following as general steps rather than instructions drawn from the report:
- Check your total income: Add your State Pension to any other pensions or earnings to see whether you cross £12,570.
- Understand how the tax is collected: HM Revenue & Customs typically recovers tax on State Pension income through PAYE on another pension, or by issuing a Simple Assessment where the State Pension is the only income.
- Keep an eye on the Budget: Any change to the personal allowance or the triple lock could alter the picture before the new tax year.
You can confirm your own figures and the current allowance directly with HMRC, and the full report is available from International Adviser.
Why does the frozen allowance matter so much?
Freezing the personal allowance is a form of fiscal drag. As incomes rise but the threshold stays put, more people are pulled into paying tax, or into higher bands, without any headline rate increase. For pensioners, the State Pension breaching the £12,570 line is a clear example of that effect in action.
The £500 breach flagged by International Adviser is a projection for next year, not a confirmed final figure. The actual outcome depends on the pension uprating that is set in the autumn and on whether the government changes the frozen allowance. Until then, the direction of travel is clear: the gap between a rising State Pension and a static tax allowance is closing.
