Pensioners are being warned that they could no longer be exempt from paying tax once the new financial year hits.

By April 2026, an extra 600,000 pensioners could be expected to pay income tax after Rachel Reeves pledged to freeze the income tax threshold until at least 2028 in the autumn budget, according to the government’s fiscal watchdog the Office for Budget Responsibility.

This freeze will result in an additional one million pensioners paying income tax by 2030-31, the OBR said.

While Rachel Reeves has pledged that no pensioners who solely claim the state pension without any other earnings will be forced to pay tax, retirement expert and former pensions minister Steve Webb has said that HMRC has “underestimated” just how many pensioners will be hit by the fiscal drag.

Ahead of the new financial year, Yahoo News explains what taxes pensioners are eligible to pay, where they are exempt, and just who will be expected to pay income tax due to the personal allowance freeze.

What taxes do pensioners no longer pay once they retire?

Pensioners in the UK don’t get a blanket exemption from taxes upon retirement, but they typically stop paying certain contributions linked to employment.

Once you reach state pension age, pensioners stop paying Class 1 employee national insurance contributions, set at around 8%, on any ongoing earnings, such as any income from employment or self-employment you continue to receive after reaching state pension age.

Self-employed pensioners are exempt from Class 2 and Class 4 contributions when completing their tax return.

Income tax on specific benefits and payments also stops.

Pension credit for lower-income pensioners is non-taxable. The winter fuel payment, which helps pensionable households with high heating costs from November to December, is also tax-free.

Disability related benefits like attendance allowance, and in certain circumstances, PIP, are not subject to income tax once a person is eligible for their state pension.

For veterans, war pensions and any money from the armed forces compensation scheme is usually tax-free.

The £10 Christmas bonus, paid to households claiming benefits over the festive period, is also tax-free.

What about on pensioners’ savings?

Sometimes, pensioners are exempt from income tax on their savings.

Income generated from cash or stocks and shares held within an individual savings account (ISA) is completely tax-free, but capped at £20,000.

While not exclusive to pensioners, each person in the UK has a personal savings allowance. They may not pay tax on up to £1,000 of interest, if they are a basic-rate taxpayer.

For higher-rate tax payers, they have a £500 cap on non-ISA savings.

Income tax on specific lump sums is also removed.

Usually, those aged 55 and above, can take up to 25% of their pension pot tax-free from their pension commencement lump sum (PCLS) when they first access it.

While the state pension age is currently set at 66, you can access your pension (including the PCLS) from age 55 because UK pension rules set the normal minimum pension age at 55.

This is a statutory minimum established in the Finance Act 2004 to balance early access with preventing pensions from being treated as savings accounts, and allows people to be more flexible in their retirement planning.

What taxes do pensioners still pay?

Pensioners in the UK do not automatically stop paying most taxes upon retirement; they continue to pay income tax on income above thresholds, just like workers.

The current threshold is set at up to £12,570, and will be frozen until April 2028.

However, the chancellor has guaranteed that state pensioners with no private pension or other income will be exempt from paying income tax.