DWP state pension - How much tax would you pay on your pension after £460 rise

State pension payments are set to rise by over £400 next April but this does mean more older Brits will have to pay tax on their retirement funds.

Under the Triple Lock Promise, state pension payments are set to rise by wage growth which this year sat at 4%. If this is the case - it will officially be confirmed on October 16 when September's inflation figure comes out - then those getting the new style state pension will see payments rise by £461.78 a year. This equates to around ££8.85 a week

The rise will also take the yearly worth from £11,541.90 to £12,003.68 - which is only £566 less than the current Personal Tax Allowance. Currently, the Personal Tax Allowance - which is the amount of income you earn every year without having to pay tax on it - sits at £12,570.

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This, like other tax thresholds, is set to remain frozen until April 2028. So under the personal allowance, you can earn up to £12,570 without paying tax on it, and any amount over you do - this also includes pensions. The hike to state pension payments - although positive for many - will see more pensioners have to pay tax on their retirement savings. This is because all pension savings - for both state and private - are included under the personal allowance.

According to data released by LCP in June there are around 8.51million older Brits paying income tax on their pensions in 2024/25, which is up 660,000 from the 7.85million last year. Figures from the Liberal Democrats say 240,000 people face crossing the personal allowance threshold next year.

Sir Steve Webb, the former Liberal Democrats pensions minister said: "From next year, roughly three in four UK pensioners will have to pay income tax, and just over a third of a million will be dragged into the tax net for the first time since they retired."

How much tax could you pay on your pension income?

Under tax rules, you pay no tax on your income until £12,570. After this, you pay 20% of the income earned over £12,570. For example, if you earn £50,270 - this is the highest amount you can earn under the 20% tax band - you pay 20% tax on £37,500. If your income is over 50,270 then you start paying 40% tax on income earned over, and This increases again to 45% for those earning more than £125,140.

So how much could people have to pay from April 2025? According to the government's tax calculator. If your pension earnings are £13,884 a year - which is the average yearly pension in the UK - then you will pay £261 in tax and take home £13,626.

For a minimum retirement standard of living, you need to have £14,400 a year according to data compiled by the Private office. This would see you pay £364.20 in tax, and take home 14,035.80 a year. For a "moderate" retirement you would need £31,300 a year and under the current tax rules, you would pay £3,744.20 in tax and take home £27,555.80. Finally, for a comfortable retirement, you would need £43,100 and would see you pay £6,104.20 in tax and take home £36,995.80.

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