Martin Lewis: Money Saving Expert warns state pensioners as Autumn Budget 2025 could make historic change
Millions of retirees could soon be swept into the tax system for the first time 💸
- Martin Lewis has warned that state pensioners may soon pay income tax for the first time
- Frozen tax thresholds mean rising State Pension payments are pushing people towards the £12,570 limit
- Reports suggest the Chancellor will extend the threshold freeze until 2030
- This could make the full State Pension taxable, even for pensioners who don't work
- Lewis says working still ‘pays’, but more pensioners will be dragged into basic-rate tax
State pensioners could soon find themselves paying income tax for the first time Martin Lewis has warned, as frozen tax thresholds push more older people over the line.
The MoneySavingExpert founder raised the alarm on his ITV show this week after a 67-year-old viewer asked whether taking on a small part-time job would land her with a tax bill.
But Lewis said the bigger issue is that millions of pensioners are already drifting towards the £12,570 tax threshold purely because of rising State Pension payments.
And, crucially, it’s a problem that could grow quickly. Reports suggest Chancellor Rachel Reeves is preparing to freeze income tax bands until 2030 in her upcoming Budget, a move that would pull even more pensioners into paying tax for the first time.
Why pensioners are at risk of a tax bill
Lewis began by clarifying a point that catches many people out: the State Pension has always been taxable. It just usually sits below the personal allowance, meaning no actual tax is paid. But that gap is rapidly shrinking.
The full new State Pension is currently around £11,900 per year, comfortably under the £12,570 personal allowance. But in April, the triple lock is expected to push it up to around £12,500, still fractionally below the threshold.
“But the following year,” Lewis warned, “because thresholds are frozen — and that freeze is likely to be extended for another couple of years — then it will probably be the first time that someone on a full State Pension will pay tax on that income if they don’t earn anything else.”
In other words: millions of pensioners may soon owe income tax simply because their pension uprated while the tax threshold stayed frozen.
The Treasury has declined to comment on the freeze rumours ahead of the Budget, saying it will not address “speculation around tax changes”.
How do tax threshold freezes work?
Threshold freezes have been in place since 2021, and inflation has done the heavy lifting ever since. Wages have risen, pensions have risen, but the tax line has not moved.
The result is what economists call “fiscal drag”; more people being nudged into paying tax despite their financial circumstances not really improving in real terms.
This has already swept huge numbers of low-income workers into paying basic-rate tax. Now, Lewis says, pensioners, including many living only on the State Pension, are next in line.
If reports are correct and the freeze is extended until 2030, the next two upratings could push the full State Pension above the tax line altogether.
What happens if pensioners take on part-time work?
Responding further to the viewer’s question, Lewis was clear: working still pays. If a pensioner on the full State Pension earns even a small amount from a job, they will almost certainly exceed the personal allowance and pay 20% tax on the slice above £12,570.
He offered a simple example:
- Total income: £15,000
- Amount above allowance: £2,430
- Tax owed: around £500
- Take-home from the extra work: roughly £2,000
“The more you earn, the more you take home,” he said. “It’s never worth not working because of tax.”
But soon, even pensioners who don’t work may end up in that position regardless. The Budget next week will confirm whether the freeze, and the consequences for pensioners, will go ahead.