The much-discussed 'triple-lock' has been profitable for retirees, in that it has guaranteed that the state pension would go up each year by either the rate of inflation, the rate of wage growth or 2.5 per cent - whichever is the greater.
It has been particularly good news for pensioners this year because wage growth last year was calculated at around eight per cent, which meant that the state pension this year grew by a whopping eight per cent rather than the lowest amount of 2.5 per cent.
Happy days, you might think, if you’re drawing the state pension right now.
Burt while they give with one hand, they take away with the other..
The full State Pension in the UK for the 2025/26 tax year is worth £11,975 a year. As the thresholds for basic income tax has been frozen at £12,570 since, April 2021 this means that even if you have no income from any other investments, as someone drawing the full state pension you are dangerously near the threshold for paying income tax.
All you need is a few investments – or maybe a small workplace pension – and suddenly you will find yourself paying income tax just when you thought you didn’t have to anymore.
What can you do if you think you will have to pay tax?
Steven Kibbel, a financial planner and Chief Editorial Advisor at Gold IRA Companies says he has seen this taxable income catch retirees off-guard. He says “One couple I worked with were relying on the full new state pension and a modest workplace pension.
Separately, they were under the threshold, but once both incomes were added together, especially after a lump sum from a pension pot, they ended up with a surprise tax bill. Not huge, but enough to sting.”
Jasmine Birtles answers questions from GB News members in the exclusive pensions and retirement Q&A JASMINE BIRTLES | GETTY He says, though, that there are ways to ease it. “One simple thing is to make sure your tax code is correct,” he explains.” It sounds small, but I’ve seen people overpay or underpay by hundreds just because HMRC didn’t know about all their income sources.
“Also, of you’re already being taxed and you expect the April increase to make things worse, it’s worth reviewing your withdrawals from private pensions. Taking too much in one go can push you into a higher bracket. Spreading withdrawals over time can reduce the overall amount lost to tax.”
Some people also consider deferring the state pension. It’s not right for everyone, but if you’ve got enough income from other sources, delaying the pension can increase the payments later and avoid tipping you into tax unnecessarily right now.
Deferring your State Pension means choosing to start receiving it later than your State Pension age, which currently is 66 for both men and women.
By deferring, you can receive a higher weekly State Pension amount when you do decide to claim it. If you are planning on continue to work after retirement or you have other income sources and plan to live a good long time, it can be worth considering.
Some people also consider deferring the state pension but it’s not right for everyone
GettyFind out more about how to do this on the Gov.uk website [https://www.gov.uk/deferring-state-pension]
Steven adds “another couple I advised looked into the Marriage Allowance. One of them wasn’t using all of their personal allowance, and by transferring part of it to their spouse, they saved just over £250 in a year. It doesn’t sound like much, but when you’re on a fixed income, every bit helps.”
David Kindnesa, an accountant and personal finance writer at Best Money, adds “drawing less from a taxable pension and relying more on tax-free savings or ISA income can help.
“The key is not to leave this to chance. A quick chat with a tax advisor or financial planner can make a big difference. They can help you model different income scenarios and figure out the most tax-efficient way to access your money. I’ve worked with a lot of people in this stage of life, and even small adjustments can really improve how much you get to keep."
Financial experts suggest several ways pensioners can mitigate their tax burdenGETTYWhere else can you go for advice and help?
If you feel you can’t afford to speak to a professional financial advisor, it’s worth contacting the Age Uk advice line [https://www.ageuk.org.uk/services/age-uk-advice-line/[, or speaking to your local Citizen’s Advice centre [https://www.citizensadvice.org.uk/]
If you are over 50 you can get a free advice session from the Government’s PensionWise service. You can book an appointment with Pension Wise either online or over the phone. Find contact details on the MoneyHelper website at https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise
