Over-60s should know three things about their state pension, HMRC says | Personal Finance | Finance

HMRC has urged those approaching retirement age to familiarise themselves with key tax information, encouraging them to “pop the kettle on” and absorb three crucial facts before their brew finishes. This follows a recent OBR report revealing that 600,000 pensioners will be pulled into paying tax.

Taking to X, HMRC outlined three ‘good-to-knows’ about the state pension, stating: “Tax in retirement works like usual. Up to £12,570 of your income may be tax-free (your Personal Allowance). Anything above that is taxed based on how much you earn.”

State pension counts as taxable income

Taxable income can include:

• State pension
• Personal pensions
• Workplace pensions
• Savings
• Investments

All of your taxable income streams are combined to determine your total annual income. If this figure falls between £12,570 and £50,270, you’ll pay the basic rate of tax on anything exceeding £12,570.

While the state pension is considered taxable income, it has yet to reach the personal allowance threshold, meaning those solely reliant on this income are not required to pay tax on it. Millions of people above state pension age already make payments to HMRC, but hundreds of thousands more could inadvertently find themselves crossing taxable income thresholds.

At present, the full new state pension stands at £241.30 per week, approximately £12,547.60 annually. This means those receiving the full amount, roughly half of all recipients, could trigger an income tax bill by earning as little as £30 elsewhere throughout the year. If your annual earnings fall between £50,271 and £125,140, you’ll pay the higher rate, while anything exceeding £125,140 will be subject to the additional rate of income tax.

It’s expected that the next annual rise for state pension will surpass the personal allowance threshold. Chancellor Rachel Reeves has provided assurance that people whose sole income is the state pension won’t be hit with tax bills.

State pension age is increasing

State pension age represents the earliest point at which a person can claim their state pension funds. However, they’re not obliged to claim it at this stage and it can be postponed.

State pension age will be climbing from 66 to 67 for both men and women throughout the next two years. This progressive shift will directly impact those born between April 1960 and March 1961.

Anyone born after these dates will encounter a fixed state pension age of 67. Additional increases are expected around the 2040s.

State pension relies on National Insurance

The sum of new state pension you’re entitled to will hinge on your National Insurance record. You require a minimum of 10 qualifying years on your record to be eligible for the payment whatsoever.

A qualifying year is defined as a year in which you either accumulated National Insurance credits, contributed National Insurance payments or made voluntary contributions.

To claim the full £241.30 weekly amount, you need approximately 35 qualifying years. As of 2023, only roughly half of pensioners eligible for the new state pension were receiving the complete sum.