State pensioners born before 1959 could have to pay back some of their state pensions from the Department for Work and Pensions ( DWP ) to HMRC.
Millions face a “bizarre tax cliff edge” that could see them paying back state pension payments for the first time. State pensioners born before 1959 could have to pay back some of their state pensions from the Department for Work and Pensions ( DWP ) to HMRC.
By April 2026, the full new state pension is projected to reach £240.90 per week, making the annual amount just 15p below the tax-free threshold of £12,570.
The following year, in 2027/28, the pension is forecast to exceed this threshold by £315.50. Jon Greer, head of retirement policy at Quilter, commented: “What was intended as a mechanism to protect pensioners from poverty is now colliding with fiscal drag.”
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“This situation is the result of the triple lock producing some significant increases in the state pension due to high inflation and earning figures while the Government has failed to uprate tax thresholds in tandem.”
He noted that the UK is “potentially only one year away from pensioners having to effectively hand a portion of their state pension back to the Exchequer in tax, which to many would seem perverse.”
National insurance contributions for employers will go up next month, as announced in the October budget, and the OBR suggests this could filter through to lower wages for some.
The number of people paying income tax at the basic and higher levels will rise, as the thresholds at which these start have been frozen until April 2028. The OBR says it expects the government to take £310 billion in income tax, and that by 2027 to 2028 this will have risen to £378.5bn.
Even after the thresholds are due to be unfrozen, the OBR predicts an increase in the income-tax take. Receipts from all other personal taxes, except duty on tobacco, are forecast to increase over the period.
