With each new tax year, changes can affect how much pensioners keep in their pocket. The 2025/26 tax year will be no exception. Whether you’re already retired or planning to retire soon, it’s important to understand the updates and how they might impact your income.
In this guide, we break down the key tax changes for pensioners in the UK for 2025 — including personal allowance adjustments, state pension changes, and what it all means for your finances.
Personal allowance remains frozen
For 2025/26, the personal allowance — the amount of income you can earn before paying tax — remains at £12,570. This figure has been frozen for several years and is expected to stay the same until 2028.
What does this mean? As pensions and other income sources rise with inflation, more pensioners could be pushed into paying income tax, even if their standard of living hasn’t changed.
State pension triple lock applies
The state pension is expected to rise again under the triple lock mechanism, which increases the payment by the highest of:
- Inflation (CPI)
- Average wage growth
- 2.5%
For April 2025, projections suggest the state pension could increase by around 5%, though this will depend on economic figures later in 2024.
While this is welcome news for pensioners, it could also mean more people cross the personal allowance threshold and end up paying tax on their pension.
Frozen tax thresholds
In addition to the personal allowance, other tax thresholds remain frozen:
- Basic rate (20%): income over £12,570 up to £50,270
- Higher rate (40%): income over £50,270 up to £125,140
- Additional rate (45%): income above £125,140
These frozen thresholds act as a form of “stealth tax”, pulling more people into higher tax bands as incomes slowly rise.
Pension Lifetime Allowance abolished
One significant change that came into effect in 2024 was the abolition of the pension Lifetime Allowance (LTA). Previously, this limited the total value you could build up in your pension pot without facing extra tax charges.
While the LTA itself is gone, new limits apply to tax-free lump sums, so it’s still worth seeking financial advice before accessing large pension amounts.
No major changes to ISAs or dividend tax
As of early 2025, no new announcements have been made about changes to tax on ISAs or dividend income. These remain useful tax-efficient options for pensioners with investments.
What can pensioners do?
Here are a few tips to stay ahead of the changes:
- Check your total income and see if you’re close to or over the personal allowance
- Use ISAs to shelter savings and investments from tax
- Consider deferring private pension withdrawals if they would push you into a higher tax band
- Claim pension credit if you’re on a low income (read our guide to Pension Credit)
If my pension has gone up, Why aren’t I getting the 4.1% added to my pension ?
Hi Jill,
Thanks for your comment! That’s a really common question, and it can depend on a few factors.
The 4.1% increase applies to the full new State Pension, but not everyone receives the full amount — it depends on your National Insurance record. If you’re on the basic State Pension or have protected payments or deductions (like from a contracted-out pension), your increase might be smaller or look different.
Also, some payments like Pension Credit or other benefits might offset how much increase you actually see.
If you’re unsure, you can check your personal pension details on the Gov.uk State Pension page or speak with the Pension Service at 0800 731 0469.
Hope this helps!
— The Retirement Pasta Team