Millions of pensioners have just received a boost to their state pension — but experts warn the increase could tip some into paying tax for the first time, quietly reducing the benefit
The state pension is heading closer to the personal allowance(Image: GETTY)
Millions of pensioners welcomed a rise in their weekly income this April — but for some, the increase could come with an unexpected catch.
The full new state pension has risen to £241.30 per week for the 2026/27 tax year, following a 4.8% increase under the Government’s “triple lock” system. That works out at around £12,550 a year .
While the uplift is designed to help retirees keep up with rising costs, experts are warning that it brings many dangerously close to — or even over — the income tax threshold .
Why the increase could trigger a tax bill
The personal allowance — the amount you can earn before paying income tax — remains frozen at £12,570 . That means the full new state pension now sits just £20 below the tax threshold.
On its own, that won’t trigger a tax bill. But any additional income — such as a small private pension, part-time work, or savings interest — could push pensioners over the limit.
Jasmine Birtles, founder of MoneyMagpie and a long-standing personal finance expert, said: “People assume the state pension is automatically tax-free, but it isn’t — it’s taxable income like anything else.
“What’s happening now is that the pension is rising, but tax thresholds aren’t, so more retirees are being quietly dragged into paying tax without realising it.”
The state pension is set to rise above the personal allowance from April 2027 – however, Chancellor Rachel Reeves has said people whose only income comes from the state pension will not have to pay tax.
Who is most at risk?
Those most likely to be affected include:
- Pensioners with a small workplace or private pension
- Anyone earning interest on savings
- Retirees doing part-time or freelance work
Even relatively small amounts can make a difference.
For example, earning just £500 a year in savings interest could push someone above the threshold — triggering a tax bill on the excess.
Why more pensioners are being caught
The issue is being driven by what experts call “fiscal drag” — where tax thresholds are frozen while incomes rise.
Although the state pension has increased in line with earnings, inflation or 2.5% (whichever is highest), the personal allowance has remained unchanged since 2021 and is currently frozen until at least 2028.
This means more people are gradually being pulled into paying tax, even if their spending power hasn’t significantly improved.
Birtles added: “This is a classic stealth tax. You’re not necessarily better off in real terms, but you’re suddenly paying tax when you didn’t before.
“It’s something pensioners really need to be aware of now, especially if they have any additional income at all.”
What to check now
Experts say pensioners should review their finances to avoid surprises. Key things to look at include:
- Your total annual income (not just state pension)
- Whether you’re receiving taxable savings interest
- If you might need to complete a tax return or pay via PAYE
Can you reduce your tax bill?
There are a few ways pensioners may be able to manage their tax position:
- Using an ISA to earn tax-free interest
- Splitting savings between partners to maximise allowances
- Checking eligibility for Marriage Allowance
- Making sure you’re not overpaying tax through incorrect codes
Those unsure of their position can check directly with HM Revenue and Customs or seek independent financial guidance.
The bottom line
The state pension rise is a welcome boost at a time when many households are still feeling the squeeze.
But with tax thresholds frozen, experts warn that some pensioners may see part of that increase effectively clawed back — highlighting the growing importance of checking your income carefully.
Birtles said: “A small increase can make a big difference — but so can a small tax bill. Knowing where you stand has never been more important.”
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