What is the process for taxing the state pension? An additional 420,000 pensioners will be forced to pay income tax

Additionally, new data from HMRC indicates that hundreds of thousands more pensioners will have to pay tax on their pension income at the end of this tax year

We examine how the state pension is taxed.

The ongoing tax allowance freeze will result in over 420,000 additional retirees having to pay income tax this fiscal year.

Since income tax bands were frozen in 2021, the total number of taxpayers over the state pension age is predicted to increase by two million to 8.7 million, indicating that the number of pensioners who are subject to taxes is growing quickly.

Why do more retirees have to pay taxes?

The tax-free personal allowance, which has been set at 12,570 until 2028, will be exceeded by the taxable income of hundreds of thousands more pensioners, forcing them to pay taxes.

In 2021, the Conservative government implemented a tax-raising strategy known as fiscal drag by freezing tax bands.

As incomes increase, more money is spent on taxes because the frozen tax bands do not adjust to inflation.

As the state pension continues to increase annually, more retirees will be affected by fiscal drag.

The full new state pension increased by 4 points 1 percent to 11,973 in April 2025, which means that even retirees with no other sources of income are on the verge of having to pay income tax.

As early as 2027, the full new state pension is anticipated to surpass the personal allowance because of the triple lock mechanism, which raises payments in accordance with the highest rate of inflation (CPI), average earnings growth, or a flat 2.5 percent.

According to David Brooks, head of policy at pensions consultancy Broadstone, the UK's "demographic changes due to our ageing population" mean that more pensioners will have to pay income taxes, but the primary cause is fiscal drag.

"It reflects the nature of inflation linked occupational pensions and a triple-locked State Pension that continue to rise," he continued, adding that it may be personally frustrating for many pensioners.

"The government will be asked to shield pensioners from this impact once more, but since there don't seem to be many options for containing the increase in pensioner incomes, taxes are the only lever left.

How do you pay taxes on your pension?

Most pensions, including the state pension, are subject to taxes. If your annual income is more than the tax-free personal allowance of £12,570, you will be required to pay taxes on a portion of your pension.

If you receive the state pension and no other income at all during the current tax year, you will not be required to pay income tax.

The great majority of pensioners, however, have additional sources of income, such as savings, investment income, rental income, earnings from employment or self-employment, or a private or workplace pension.

The maximum amount of other income tax-free benefits that pensioners receiving the full new state pension can receive before being placed in the basic rate tax band of 20% is 597.

How do you pay pension taxes?

Most people receive a private pension that accounts for the majority of their taxable income in addition to their state pension.

In this instance, paying income tax is rather easy because your pension provider usually handles it for you by deducting any taxes you owe prior to your payout.

Under the pay as you earn (PAYE) system, your employer will typically deduct any taxes you owe from your earnings if you are working and receiving your pension at the same time.

You must, however, complete a self-assessment tax return at the conclusion of the tax year if you work for yourself. Your total income, including funds from private pensions and the state pension, must be reported on your tax return.

You will also be required to file a self-assessment tax return if you are receiving additional income from sources other than your state pension, such as rental yields.

You will receive a calculation from HMRC detailing the amount and method of payment if you are in arrears on any investment income.