Startling new figures indicate that an additional 700,000 retirees may be faced with unforeseen income tax bills, according to a recent report by the Office for Budget Responsibility.

The state pension had been projected to exceed the personal allowance for income tax in a few years, but this latest analysis suggests that the timeline has been accelerated, and pensioners may feel the financial pinch far sooner than they thought.

Currently, 8.5 million individuals above the state pension age are paying income tax, yet hundreds of thousands might be just one year away from joining their ranks.

By 2027, anyone getting the full state pension could find themselves taxed on this benefit alone.

Sir Steve Webb of LCP consultancy issued a cautionary note to the Telegraph, stating: “We could easily see another 700,000 pensioners who do not currently pay income tax dragged into the tax net over the next two years.”

The OBR’s most recent analysis outlines that pensioners could see a 4.6% increase come next April due to the triple lock

This government policy ensures the state pension will rise annually by either 2.5%, the average wage growth in the UK, or inflation—whichever is higher.

This anticipated boost in April 2026 would raise the full new state pension to £12,524, alarmingly close to the current personal allowance threshold of £12,570 per annum, which presently enables individuals to earn that amount free of income tax.

With the full state pension amount giving recipients just a £46 buffer before incurring income tax, and the personal allowance frozen since 2021, Rachel Reeves confirmed last year that Labour plans to maintain the freeze until April 2028.

Should this freeze continue alongside the OBR’s forecasted figures for next year, it essentially assures that state pension will become taxable by 2027. The Conservatives had proposed a ‘triple lock plus’ during the election to raise the pensioner personal allowance, which Labour has not taken on board.

However, the fiscal threat may not be as grave as predicted. HMRC previously assured the Telegraph that smaller tax bills from pensioners caught in this bind might be overlooked, as they “will not pursue hundreds of thousands of pensioners for tiny amounts”.

Taxpayers must manually pay income tax on state pensions, unlike other earnings where it’s deducted at source. This process starts when HMRC sends a demand letter, or simple assessment, to inform taxpayers what they owe, which can be a time-consuming and costly process.

A spokesperson told the outlet: “We will not normally issue simple assessments for tax that would cost more to collect than is owed. That would not be a good use of public funds.”