State pensioners have been warned they could soon face a new tax bill. This comes as key changes to the eligibility rules for the state pension are coming in this year.

Claimants will soon get a pay increase, as state pension payments are to increase 4.8 percent this April. The pay boost will increase the full new state pension from the current £230.25 a week up to £241.30 a week, while the full basic state pension will rise from the current £176.45 a week to 184.90 a week.

A concern here is that the full new state pension, worth £12,547.60 a year from April, will soon use up all the £12,570 personal allowance, meaning those on the full new amount alone will have to pay income tax. As the triple lock moves up payments each year by a minimum of 2.5 percent, the full new state pension will definitely use up all the personal allowance from April 2027.

The triple lock mandates that payments go up in line with whichever is highest: the rise in average earnings, the rate of inflation, or the minimum 2.5 percent. Derence Lee, chief finance officer at savings provider and insurance firm Shepherds Friendly, said: “Due to the extremely high levels of inflation the UK has experienced since 2020, state pensions have been increasing at a rate that some experts believe to be unsustainable in the long term.

“With pensions expected to surpass the frozen tax-free allowance limit next year, which will remain unchanged by the Government until 2028, more retirees will be pushed into the tax-paying bracket. As a result, pensioners should begin to take into account that they may soon need to pay income tax on their pensions should no changes be made to current status-quo.”

The finance expert said this could have a major impact on pensioner’s finances: “While the triple lock has been helpful in ensuring retirees’ incomes keep up with the cost of living, taxing pensioners could have significant financial implications, particularly for those who rely heavily on their pensions to cover essential living costs and make ends meet.”

With the tax bill looming, the Government announced that people whose only income is the state pension will not have to pay small amounts of income tax on their payments going forward. In a response to a written question about the matter, DWP minister Torsten Bell said: “The Government will set out more details in due course.”

Top officials from HMRC recently spoke to the Treasury Committee about how this will work. Cerys McDonald, director of Individuals Policy, said they will need to enact fresh legislation to make the change.

She said: “We would expect this to go through the next finance bill in the Autumn but we have mobilised a project team already in anticipation of having to make this change. The mitigation that we would normally use to recover this tax is simple assessment, normally we wouldn’t be processing that for 2027/2028 until after the 2028 tax year, so we’ve got a decent run in here.”

Mr Lee pointed state pensioners to some extra help they may be able to get towards their cost of living. He said: “To help with retirement costs, Pension Credit can help those of state pension age on lower incomes. For example, single pensioners can get their weekly allowance topped up to £218.15, or £332.95 as a couple, both of which are below the tax-free allowance threshold.

“Furthermore, those still working part-time or receiving self-employed income might consider making additional contributions to a private pension to help with costs once they retire from work completely.” He also shared some tips for those who plan to retire soon.

The expert said: “For those looking to retire in the near future, they should consider how their income can be built up by saving into a tax-free ISA, growing their savings through investments where possible, and utilising workplace pension schemes to secure their future income during retirement. Due to the increasingly aging population and the context of economic uncertainty, it can be hard to predict what the future of the triple lock will look like, so it’s always best to have a financial back up plan in place where possible.”

Key policy changes coming up

The state pension age is increasing from this April, rising from the current 66 in stages to reach 67 by April 2028. Laws are also in place for this to increase again to 68 between 2044 and 2046.

A review of the state pension age published in 2023 recommended bringing forward the move to 68, but this idea was not taken up by the then Conservative Government. Labour announced in 2025 there would be another review of the state pension age.

If you are planning on building up your ISAs, as per Mr Lee’s suggestion, you may also want to bear in mind some changes coming up here. The current ISA allowance whereby you can deposit up to £20,000 split between any type of ISA is being slashed from April 2027.

From this date, you will only be able to use up to £12,000 of the allowance as you decide, while the remaining £8,000 will not be available for cash deposits, so you will have to put away this amount into investment-based accounts. State pensioners will not be affected by the new rules, as those aged 65 and over will retain the current ISA allowance.

Ensure our latest headlines always appear at the top of your Google Search by making us a Preferred Source. Click here to activate or add us as your Preferred Source in your Google search settings.