People receiving the full State Pension have been advised some other changes will go ahead
The DWP has released a statement regarding a significant change in how the state pension is taxed. State pension payments rise each April thanks to the triple lock policy, which delivered a 4.8 per cent increase to payments this past April.
Under existing rules, state pension payments land in your bank account without any deductions, though they do count as taxable income, much like other earnings such as wages or any private pension income you receive. Should you be required to pay tax on your payments, HMRC can collect this through several methods. These include adjusting your tax code if you have a private pension or are employed, via self assessment if you complete one, or through simple assessment.
However, a report by City AM suggested the Treasury was considering changing this, and was “drawing up plans” to automatically deduct income tax from state pension payments before they are paid out. The report claimed that the Treasury was collaborating with the DWP on proposals to deduct tax at source, similar to how employers deduct work-related taxes from staff wages before transferring them into employee bank accounts.
DWP statement
The DWP was asked what work is being carried out on such a proposal. A Government spokesperson said: “There has been no change to the tax treatment of the state pension.
“The Government routinely undertakes research to better understand pensioners’ experiences with the tax system.” However, tax officials are pressing ahead with a significant reform to state pension taxation, which is set to take effect shortly.
Tax changes coming soon
Chancellor Rachel Reeves confirmed at the Autumn Budget 2025 that a new policy would be introduced, ensuring that those whose sole income is the state pension without any additional increments would be exempt from paying income tax. This tax relief measure is necessary as the full new state pension is edging ever closer to the threshold at which income tax becomes payable.
The full new rate currently stands at £241.30 per week, or roughly £12,550 annually, falling just short of the £12,570 personal allowance — the standard maximum amount you can earn each tax year before income tax kicks in.
State pension payments rise every April, in accordance with the triple lock policy, which increases payments by whichever is highest out of 2.5 per cent, the rate of inflation, or the growth in average earnings. This means the full new state pension will definitely incur a tax bill next year under the current rules.
Treasury statement
The Government was recently asked to provide an update regarding the implementation of this new policy. An HM Treasury spokesperson said: “Anyone whose only income is the full new or basic state pension without any increments will not pay income tax, and we are committed to that over this Parliament.
“By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7.”
HMRC officials previously said that new legislation would need to be introduced to implement the change. They told the Treasury Committee in January that this could potentially be included in the 2026 autumn finance bill.



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