27 Oct 2025
The Treasury should make it easier for state pensioners to pay any tax they owe with a Pay as You Earn (PAYE) scheme, says the Low Incomes Tax Reform Group (LITRG).
The LITRG told the Treasury that there is a 'pressing need' to change the way the payments are taxed to make the process easier to understand and manage.
This is due to the increasing number of pensioners finding out that they owe income tax on their state pension for the first time. The LITRG has recommended that the State Pension be given its own PAYE scheme, so that any tax is collected at source by the DWP before State Pension payments are made.
Currently, any tax due on a person's State Pension is collected by adjustments to tax codes, self assessment or simple assessment.
Sarah Weston, Technical Officer at the LITRG, said: 'The continued freezing of the tax-free personal allowance and triple-lock pension increases mean growing numbers of people are facing a tax bill on their State Pension for the first time.
'Some people are unaware of this and can end up with a nasty shock if they receive an unexpected tax bill from HMRC after the end of the tax year. For those who are affected, it can be unclear and confusing.
'We think that bringing the State Pension into its own separate scheme of PAYE would be a simplification that will make it easier for HMRC to collect the tax it is owed.'