Expert reveals when state pensioners can expect to start paying tax

Any pensioner whose sole income is the State Pension can expect to start paying the basic rate of tax in the financial year 2027 to 2028, according to a pensions expert.

Fidelity International has predicted the outcome of the Labour government's decision to freeze tax thresholds until 2028 on the pockets of those who are on, or about to start taking, an income from the State Pension.

Tax thresholds were frozen in 2022 by the previous Conservative government but were due to rise again each year from 2028.

The decision not to increase tax thresholds, known as fiscal drag, will mean 400,000 more Brits will start paying income tax between now and 2028.

The basic rate of tax is payable on income of over £12,570. The current state pension is £230.25 a week, or £11,973 a year.

But the effect of the Triple Lock, which was introduced in 2011, means the state pension will exceed this personal allowance by 2027.

The Triple Lock commits the Government to raising the State Pension each year by the highest of either inflation, wages or 2.5%; assuming a rise of the latter the state pension will be worth at least £12,579.13 ayear

The number of people of State Pension age or over who are paying income tax has soared in recent years.

According to pensions consultancy Broadstone, 6.7 million people of State Pension age or over were paying income tax as of 2021/22, rising to 7.1 million in 2022/23, 7.9 million in 2023/24 and 8.5 million in 2024/25.

David Brooks, head of policy at Broadstone, said: "We would expect a growing number of pensioners to be liable for income tax as the country’s demographic changes due to our ageing population and pace of increases to the state pension. But it is a reminder that with the income tax thresholds frozen at £12,500 until 2028 since 2021, an ever-growing proportion of pensioners will be captured by the tax given the increases to the state pension."

Ed Monk, a personal finance expert at Fidelity International, said as the government looks to fill a £40billion gap in the public finances reforming the Triple Lock may be a cost-saving measure - although all the major political parties promised to keep the measure for this parliament.

He said: "With the State Pension likely to come under increasing pressure, there is even more onus on individuals to fund their own retirement. Money paid into a pension normally benefits from tax-relief, while employees with access to company schemes can usually benefit from employer contribution made on their behalf.

"Ensure you make maximum use of any help on offer to improve your retirement prospects.

"And while you may not be able to control the future rises in the State Pension, you can make sure you have a full contribution history to ensure you get the maximum available - whatever that turns out to be.

Your entitlement to the State Pension is based on your National Insurance (NI) contributions. To get the full State Pension you need to have made NI contributions for 35 complete years by the time you retire.

"Those working as employees are likely to have NI taken automatically from their pay, while self-employed people with earnings above a certain level will pay their contributions via self-assessment.

"The government has an online service that lets you check on your NI record for any gaps and to see whether you’ll get the full amount."