The Department for Work and Pensions (DWP) has issued a statement addressing claims that the Treasury is planning to automatically deduct income tax from state pension payments. The clarification comes amid reports that the government is considering a significant shift in how the state pension is taxed.
Current State Pension Tax Rules
Under existing rules, state pension payments are made without any deductions, but they count as taxable income, similar to wages or private pension income. If you are required to pay tax on your state pension, HM Revenue and Customs (HMRC) can collect it through adjusting your tax code, self-assessment, or simple assessment. The full new state pension currently stands at £241.30 per week, or approximately £12,550 annually, just below the personal allowance of £12,570.
Reports of Automatic Deductions
A report by City AM suggested that the Treasury was drawing up plans to automatically deduct income tax from state pension payments before they are paid out, similar to how employers deduct taxes from wages. The report claimed that the Treasury was collaborating with the DWP on the proposals.
DWP Response
In response to inquiries about such a proposal, a Government spokesperson said: "There has been no change to the tax treatment of the state pension. The Government routinely undertakes research to better understand pensioners' experiences with the tax system." However, tax officials are reportedly pressing ahead with a significant reform to state pension taxation, set to take effect shortly.
Upcoming Tax Changes
Chancellor Rachel Reeves confirmed at the Autumn Budget 2025 that a new policy would ensure that those whose sole income is the state pension without any additional increments would be exempt from paying income tax. This relief is necessary as the full new state pension is edging closer to the personal allowance threshold. State pension payments rise each April under the triple lock policy, which increases payments by the highest of 2.5%, inflation, or average earnings growth. This means the full new state pension will likely incur a tax bill next year under current rules.
Treasury Statement
An HM Treasury spokesperson said: "Anyone whose only income is the full new or basic state pension without any increments will not pay income tax, and we are committed to that over this Parliament." They added: "By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7." HMRC officials previously stated that new legislation would be needed to implement the change, potentially included in the 2026 autumn finance bill.
