24 November 2025
New analysis from Quilter, the financial adviser, reveals pensioners receiving the full new state pension (with total income below £35,000) would pay back their £200 Winter Fuel Payment in income tax by 2029/30 if the government opts to extend the freeze on thresholds*.
A combination of frozen thresholds and healthy uplifts to the state pension in recent years will result in many starting to pay tax on their state pension entitlement from the 2027/28 tax year. However, by 2029/30, this amount could rise to £200.
Under current assumptions, pensioners could receive a 3% increase in the state pension in the 2027/28 tax year in line with the Bank of England’s projection for 2026 inflation, and a minimum of 2.5% annually thereafter under the triple lock guarantee. This would see the full new state pension reach £13,623.83 by 2029/30.
However, most tax years, HMRC calculates the annual taxable total for the state pension as one week at the old rate and 51 weeks at the new rate. For instance, in 2026/27, this would result in 51 weeks at £241.30 and one week at £230.25 (the 2025/26 rate). Resulting in a taxable amount of £12,536.55 and therefore no tax due.
If the personal allowance were to remain at £12,570 until 2029/30, this would mean pensioners paying £200.17 in income tax, effectively cancelling out the typical £200 Winter Fuel Payment received by many pensioners.
What’s more, the Winter Fuel Payment is fully withdrawn where income is over £35,000. This means unless this threshold is also uprated, those with other income (circa £22,000) who currently receive this today could lose their entitlement because of future state pension increases.
|
Tax year |
State pension uplift |
Weekly state pension |
Annual state pension (using Gov calculation accounting for leap years) |
Taxable amount |
Tax due 20% |
|
2026/27 |
4.8% earnings link |
£241.30 |
£12,590.69 |
£12,536.55 |
£0 |
|
2027/28 |
3% inflation link |
£248.55 |
£12,968.98 |
£12,917.35 |
£69.47 |
|
2028/29 |
2.5% triple lock guarantee |
£254.75 |
£13,292.49 |
£13,240.80 |
£134.16 |
|
2029/30 |
2.5% triple lock guarantee |
£261.10 |
£13,623.83 |
£13,570.85 |
£200.17 |
What’s more, the 2.5% uplift is the minimum amount the state pension can increase by, making this a conservative estimate. Should inflation or wage growth continue to be higher than 2.5% in the coming years, pensioners could pay back their Winter Fuel Payment even sooner.
Adam Cole, retirement specialist at Quilter, says:
“Should the government opt to extend the freeze on income tax thresholds, we will soon be in a perverse situation where pensioners will have to start paying back their state pension to HMRC. In just a few short years, those with incomes comprised of solely the state pension will not only be paying tax, but they will do so at levels that would erase the Government’s Winter Fuel Payment, which is designed to help those who are most vulnerable. Failing to increase the Winter Fule Payment threshold would also create a variation on the fiscal drag theme, resulting in many losing the benefit entirely.
“Extending the freeze on income tax thresholds once seemed unlikely given it was used as the Chancellor’s ‘rabbit out of the hat’ moment at her 2024 budget, with her saying plainly that to do so would hurt working people. Opting to row back on this position could be damaging, but the tides have since changed and the Chancellor has been left with few other options.
“Increasing the headline rates of income tax would have torn Labour’s manifesto promises to shreds. However, the threshold freeze, which was once a tax by stealth that went under the radar when first introduced, is now having a material impact on people’s incomes. Had the basic rate threshold increased in line with inflation since it was first frozen in 2021, it would now be worth £15,656. Not only would the state pension be taxed, but the working population would suffer further too.
“Reeves faces a large fiscal hole and is seemingly scrabbling around trying to fill it, all while trying to save face with the public. However, an extended threshold freeze is no longer a stealthy move. The Chancellor said herself that such a move would hurt working people, but this time it would go further and hit some of the most vulnerable.”
* The amount of winter fuel payment is determined by date of birth and receipt of other benefits. See Winter Fuel Payment: How much you'll get - GOV.UK for more details.
