Big changes are coming to the UK State Pension system in 2025. The government is increasing the State Pension age from 66 to 67, and some pensioners may end up receiving less money than expected. On top of that, more people may now have to pay tax on their pensions because of frozen tax thresholds.
These changes will affect how and when you can retire, how much you’ll get, and whether your pension is taxed. Here’s everything you need to know.
What’s Changing in 2025?
From next year, the UK government is raising the State Pension age. This means that:
- If you were born between 6 April 1960 and 5 May 1960, your retirement will be delayed by one month.
- Eventually, the State Pension age will rise to 67, affecting millions of people.
Missing even six months of State Pension payments due to a change in age could cost you around £5,980, according to financial experts.
Why Could Some Pensioners Pay Tax?
The full New State Pension is getting closer to the personal tax allowance limit of £12,570. That’s the amount of income you can earn each year without paying tax.
Currently, the full new State Pension is around £11,500 a year, and if it continues to rise with inflation and the triple lock system, it could soon pass the tax-free limit.
Once that happens, some pensioners will face tax bills, even if their only income is the State Pension.
Will There Be More Changes?
Yes, more increases are planned. The government plans to raise the State Pension age to 68 between 2044 and 2046, but some reports suggest this could happen sooner.
You can check your personal State Pension age using the GOV.UK ‘Check your State Pension age’ tool.
How State Pensions Work
There are two main types of State Pension:
- Basic State Pension – For people who reached pension age before 6 April 2016
- New State Pension – For people who reached pension age on or after 6 April 2016
Once you reach State Pension age, you have three main options:
- Stop working and claim your pension
- Keep working and claim your pension
- Keep working and delay your pension, which may increase your total payout later
You might also qualify for extra payments or lump sums if you delay claiming.
What Benefits Change at State Pension Age?
When you reach your State Pension age, some benefits will stop, while others will continue or become available:
Stop after State Pension age:
- Jobseeker’s Allowance (JSA)
- Employment and Support Allowance (ESA)
- Income Support
Still available at State Pension age:
- Pension Credit
- Attendance Allowance
- Winter Fuel Payment
- Council Tax Reduction
- Carer’s Allowance (may be reduced)
Government’s Response
Torsten Bell, DWP Minister and Labour MP, commented that the government had frozen the personal tax allowance at £12,570 until 2028. However, he also said that at their first Budget, no further freeze was added.
He added:
“This Government is absolutely committed to supporting pensioners and giving them the dignity and security they deserve in retirement.”
The upcoming changes to the State Pension age and the risk of pension income becoming taxable are set to impact millions of people. If you’re approaching retirement, now is the time to check your pension age, plan ahead, and understand what benefits you might gain or lose. Staying informed will help you make the best financial decisions for your retirement.
FAQs
When is the State Pension age increasing to 67?
The increase from 66 to 67 starts in 2025, affecting people born between April 6 and May 5, 1960.
How much could I lose if my pension age is delayed?
You could miss out on up to £5,980 if you lose six months of State Pension due to the raised pension age.
Will my State Pension be taxed?
If your total yearly pension goes over the personal allowance of £12,570, you may need to pay tax.
Can I delay my State Pension?
Yes. You can delay claiming and may receive extra money or a lump sum later.
How do I check my State Pension age?
Use the government’s online tool at gov.uk to check your exact pension age.
