300,000 state pensioners 'edging closer' to having payments reduced

It is due to a combination of hefty state pension rises and frozen tax thresholds.

A state pension warning has been issued to hundreds of thousands as they "edge closer" to having money knocked off payments from the Department for Work and Pensions (DWP). It is due to a combination of hefty state pension rises and frozen tax thresholds.

It is expected that more than 300,000 pensioners will be told that they need to pay tax when the state pension rises by £473 in 2025. Alice Haine of Bestinvest said: "Add in frozen tax thresholds, with the full new state pension gaining ground on the standard personal allowance of £12,570 and pensioners are edging closer to the point at which their state pension income becomes liable for tax.

"Retirees already receiving a higher state pension may already be paying tax on the benefit, while those receiving a private pension income will see more of that swallowed up by tax." Helen Morrissey, head of retirement analysis, Hargreaves Lansdown also pointed out that while rising state pensions are good news, the tax threat is "a hidden sting in the tail".

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She said: "While the full new state pension is currently set at £11,502 and is set to get close to £12,000 from next April it’s conceivable that in the next two years we could see it breach the £12,570 threshold and see pensioners landed with a tax bill. It’s also worth saying that many pensioners on the basic state pension system receive more than this as they get a top-up to their income in the form of the state second pension so receive a tax bill even if they have no other income."

She said: "Those pensioners wholly reliant on the state pension who face paying tax will receive a simple assessment letter from HMRC telling them how much they owe. There have been concerns about pensioners being chased for small amounts of tax though HMRC has said they would not look to chase tax amounts that would cost more to collect than is actually owed."