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I’ve received my tax code notification letter from HMRC, which shows my personal allowance has significantly reduced.
I’m about to start receiving my state pension (I also receive income from an occupational pension).
Has the state pension affected my personal allowance?
Richard from Yorkshire
'DWP gives you the state pension, then HMRC taxes it'
Joanne Padilla, Which? money expert, says…
Yes, your personal allowance has fallen because of your state pension.
When you start claiming it, the Department for Work and Pensions (DWP) notifies HMRC of how much you will be paid. HMRC allocates your state pension to your personal allowance first.
For the 2025-26 tax year, the full state pension is worth £11,973, using up most of the tax-free personal allowance of £12,570. With very little left of your tax-free allowance to cover your occupational pension, more of it will be subject to income tax.
There is a good chance that your state pension will eventually be higher than the personal allowance
As income tax thresholds are frozen until the 2028-29 tax year, and the state pension rises each year in line with the triple lock, there is a good chance that your state pension will eventually be higher than the personal allowance.
If that happens, HMRC will take additional tax from your occupational pension to cover the tax you owe on the surplus state pension.
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