The Department for Work and Pensions (DWP) has issued an important update that will affect millions of UK retirees beginning in April 2026.
Two significant changes to the State Pension system are on the horizon: a gradual increase in the State Pension age, and potential tax implications as the pension amount approaches the income tax personal allowance threshold.
These updates are part of ongoing adjustments to ensure the system’s sustainability and reflect changing economic and demographic realities.
Change 1: State Pension Age Rising from 66 to 67
The first major change will impact individuals nearing retirement. Starting in April 2026, the State Pension age will begin to rise from 66 to 67.
This change will be introduced gradually and will particularly affect people born between 6 April 1960 and 5 April 1961, who may see their retirement date pushed back by one to several months.
By 2028, this phased increase will be fully implemented, and the State Pension age will officially be 67 for all. This policy reflects longer life expectancy and aims to reduce the strain on public pension funding.
Who Will Be Affected?
- Those born between 6 April 1960 – 5 April 1961
- Individuals expecting to retire at 66 may now have to wait longer
- This change will not affect those already receiving the State Pension
Planning Tip: If you are approaching retirement age, it’s important to check the new retirement timeline and adjust your financial plans accordingly.
Change 2: Pension Amount Nears Income Tax Threshold
The second key change isn’t directly about pension eligibility, but about how it interacts with taxation.
The full new State Pension for the 2025–26 financial year is projected to reach around £11,973 annually, following the triple lock guarantee. However, the income tax personal allowance remains frozen at £12,570 until at least 2028.
This leaves a gap of only £597, meaning even a modest increase—say 5%—could push pension income over the personal allowance limit. When that happens, many pensioners could begin paying income tax on their State Pension income alone.
Why It Matters
- A 5% increase would bring the full State Pension to approx. £12,571.65
- Any amount above £12,570 would be taxable
- Many retirees with no other income could start receiving tax bills for the first time
This would be a major shift, especially for those living solely on their pension and previously not paying tax.
At-a-Glance Summary of DWP Changes
| Change | Details |
|---|---|
| State Pension Age Increase | Rising from 66 to 67 between 2026 and 2028 |
| Affected Birth Dates | 6 April 1960 to 5 April 1961 initially |
| Full State Pension (2025) | £11,973 annually |
| Personal Allowance | £12,570 (frozen until 2028) |
| Tax Risk | Pension increases may lead to income tax liability |
Impact on Pensioners
1. Delayed Retirement
Many people may need to work longer or adjust their retirement savings strategy to accommodate the extra months (or year) before becoming eligible.
2. Unexpected Tax Bills
Pensioners could face reduced take-home pay due to income tax, which may not have been part of their original retirement planning. While the amount of tax may be small, it can affect budgeting, especially when coupled with inflation and rising living costs.
3. Increased Financial Planning Need
These changes highlight the importance of early retirement planning, especially for those in their late 50s and early 60s who are approaching retirement under shifting policies.
What Pensioners Should Do Now
To prepare for these changes, pensioners and those nearing retirement should:
- Check Your State Pension Age using the online DWP calculator
- Review your expected pension income and other retirement sources
- Consider potential tax liabilities in future pension increases
- Speak with a financial advisor to explore legal ways to reduce taxable income
- Stay informed by monitoring announcements related to State Pension and taxation
With the DWP confirming two major changes—the State Pension age increase and the looming tax threshold overlap—retirees in the UK must prepare for a shifting financial landscape.
These updates are not just numbers on a page—they represent real changes in when you can retire and how much money you’ll keep once you do.
Being informed and proactive can make all the difference. Whether you’re a few years from retirement or already planning your post-work life, understanding these policy changes is critical to protecting your retirement income and financial well-being.
FAQs
When will the State Pension age change to 67?
The State Pension age will begin rising from 66 to 67 in April 2026 and will be fully implemented by 2028.
Will I have to pay tax on my State Pension?
If your pension income exceeds the £12,570 personal allowance, you may become liable for income tax, even if it’s your only income source.
How much is the full new State Pension in 2025?
The full new State Pension is projected to be £11,973 annually, just £597 below the current personal allowance.