The full new State Pension is now £12,547 a year — just £23 below the £12,570 personal allowance threshold. If you receive any other income at all, some of it is almost certainly being taxed. With the allowance frozen until at least April 2028 and the State Pension rising each year under the triple lock, millions more people are being pulled into the income tax system than at any point in recent decades. HMRC usually collects the tax automatically — but it is worth knowing how, and checking you are paying the right amount.
Why are more pensioners paying income tax than ever before?
The answer lies in two things happening at the same time. The personal allowance — the amount you can receive each year before paying any income tax — has been frozen at £12,570 since April 2021 and will stay at that level until at least April 2028. At the same time, the State Pension has been rising every year under the triple lock, which guarantees it increases by whichever is highest: inflation, average earnings growth, or 2.5%.
In April 2026, the full new State Pension rose by 4.8% to £241.30 a week — or £12,547 a year. That leaves a gap of just £23 between the State Pension and the point at which income tax kicks in. Anyone with even a small private pension, savings interest, or part-time earnings on top is now paying tax on some of that income.
The scale of the shift is striking. The number of taxpayers aged 66 or over has jumped from 6.7 million in 2021/22 to 8.8 million in recent years — an increase of more than two million people — according to HMRC data cited by the Office for Budget Responsibility.
Who does this affect — and does it include you?
If your only income is the full new State Pension, you will not owe income tax right now — your £12,547 is still just below the £12,570 threshold. But that is about to change: from 2027/28, the State Pension alone is expected to exceed the personal allowance for the first time.
You are very likely to be affected today if you receive any of the following on top of your State Pension:
- A workplace or private pension, however small
- Interest from savings accounts above your Personal Savings Allowance
- Income from renting out property
- Part-time employment or self-employment earnings
- Certain taxable state benefits or occupational pension top-ups
Even a modest private pension of £50 a month (£600 a year) puts your total income £577 above the personal allowance. You would owe basic rate tax — 20% — on that excess: roughly £115 a year. It is not a huge sum, but it is real money, and many people do not realise it is being deducted.
How does HMRC actually collect the tax?
HMRC cannot deduct tax directly from your State Pension — the DWP pays it gross, without any tax taken off. So income tax on your State Pension is collected in one of two ways:
Via your tax code (PAYE). If you also receive a private or workplace pension, HMRC adjusts your tax code so the pension provider takes a little more tax each month. You may notice your pension paying out slightly less than you expected — this is usually why. Your pension provider will send you a P60 each April showing what was deducted during the year.
Via a Simple Assessment letter. If you have no private pension or other PAYE income, HMRC may send you a Simple Assessment — a letter that sets out exactly what tax you owe for the previous tax year. You do not need to fill in a full Self Assessment tax return; you simply check the figures and pay the amount shown by the deadline (usually 31 January or three months after the letter arrives, whichever is later). These letters typically arrive between July and August after the end of the tax year.
If you have not received anything from HMRC but think you may owe tax, you can check your position at any time through your HMRC Personal Tax Account at gov.uk — free to use and takes around ten minutes to set up if you have not already done so.
What should you do if a Simple Assessment letter arrives?
Do not ignore it. A Simple Assessment is a legally binding demand for payment, and interest can be charged on late amounts. Here is what to do when the letter arrives:
- Check the figures carefully. HMRC uses information from the DWP and your pension providers, but errors do occur. Compare the amounts shown against your own records, such as P60s or bank statements.
- Query it if something looks wrong. You have 60 days from the date of the letter to challenge the calculation. You can do this by phone (0300 200 3300) or through your HMRC Personal Tax Account online.
- Pay by the deadline shown. You can pay online, through the HMRC app, by bank transfer, or by cheque made payable to HM Revenue and Customs.
- Keep a copy of your payment confirmation — a screenshot or printout — in case any dispute arises later.
If you are worried or confused, the Low Incomes Tax Reform Group offers free, independent guidance on pension taxation at litrg.org.uk. They are particularly helpful for people on modest incomes who are new to dealing with HMRC.
What is changing from 2027/28 — and will it help?
The government has acknowledged the problem. In the 2025 Autumn Budget, ministers confirmed that from the 2027/28 tax year, pensioners whose only income is the basic or new State Pension will not be required to deal with a Simple Assessment, even if the pension nudges above the personal allowance. HMRC will, in effect, absorb the small liability rather than pursuing it.
This is genuinely helpful for people with no other income whatsoever. But it will not help the millions who also receive a private pension, savings interest, or any other income — they will still owe tax and still need to pay it.
There are growing calls from economists and charities — including the Institute for Fiscal Studies and Age UK — for the personal allowance itself to be unfrozen, or for a separate, higher allowance for pensioners. For now, though, the freeze is confirmed until at least April 2028.
Are there steps you can take to reduce your tax bill in retirement?
There are several practical options worth considering, depending on your situation:
- Marriage Allowance. If you are married or in a civil partnership and one partner has income below £12,570, you can transfer £1,260 of your personal allowance to the higher earner — saving up to £252 a year. Apply free at gov.uk/marriage-allowance. Many couples who qualify have never claimed this.
- Use your ISA allowance. Interest earned inside a Cash ISA does not count as taxable income at all. With easy-access ISA rates currently around 4.76% AER, moving savings into an ISA can remove part of the tax problem entirely — especially if savings interest is pushing you over the threshold.
- Check your tax code. Your code should appear on your pension payslip or P60. The most common code for a basic-rate pensioner is 1257L — if yours looks different and you do not know why, it is worth querying with HMRC. An incorrect code can mean overpaying or underpaying all year.
- Consider deferring your State Pension. If you have not yet started drawing the State Pension and already have income close to your personal allowance, deferring for a year increases the weekly amount you eventually receive. This may suit you better once other income reduces — though it is a significant decision worth discussing with an independent financial adviser.
Key takeaway
The State Pension is now only £23 below the income tax threshold — and with the personal allowance frozen until at least 2028, that gap will disappear entirely within two years. If you receive any income beyond the State Pension, you are almost certainly already paying some income tax. The most important steps are to check your position through your HMRC Personal Tax Account, make sure your tax code is correct, and not ignore any Simple Assessment letter that arrives in the post. Free help is available from the Low Incomes Tax Reform Group at litrg.org.uk.
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