State pension warning as thousands of retirees risk new tax from April and they don’t realise it

The warning comes ahead of the new tax year, when the full new State Pension will rise to within less than £30 of the personal allowance.

That slim gap means even a small amount of additional income, such as a private pension or savings interest, could push retirees over the threshold and into paying tax.

With payments increasing but the tax-free allowance frozen, growing numbers of pensioners risk being dragged into the tax net for the first time – making it vital they understand the rules before April.

The study found that nearly seven in ten retired individuals who are no longer working paid tax on their pension income during the previous year.

Those who faced tax bills paid an average exceeding £4,500, with more than a quarter handing over sums greater than £5,000.

Despite these substantial payments, the research uncovered a troubling lack of awareness about the amounts involved.

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Two thirds of pensioners who paid tax either did not know how much they had contributed or could not recall the figure.

While most taxpayers over State Pension age anticipated their liability, 12 per cent were caught off guard by their bill.

Sarah Pennells, consumer finance specialist at Royal London, said the awareness gap was understandable given how payments are made: “The fact that approximately 4 in 10 adults do not know the State Pension is taxable is not surprising as it’s paid without tax being taken off.”

However, she stressed the importance of understanding potential liabilities as the personal allowance threshold draws closer.

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Ms Pennells highlighted that certain retirees already face tax demands regardless of additional income streams.

He said: “Some pensioners who built up a larger State Pension under the old system, thanks to the State Earnings Related Pension Scheme (SERPS), will already be paying tax even if they have no other income in retirement.”

For those seeking to avoid unexpected demands from HMRC, Ms Pennells advised calculating total retirement income in advance.

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“If you have a defined benefit pension, your pension scheme should tell you each year how much your payments are going to be,” she explained.

Those drawing from personal or workplace pensions have greater flexibility, with the option to adjust withdrawal amounts to minimise or potentially eliminate their tax burden entirely.

Ms Pennells also pointed retirees towards official resources: “There’s a useful tool on Gov.uk which will tell you whether you’re likely to pay tax.”