PIXIE PAYROLL Blog

The UK’s state pension plays a vital role in supporting millions of retirees but its rising costs have been sparking debate recently. Let’s break down what the state pension is, how much it’s worth, and why the “triple lock” guarantee is under scrutiny.

What Is the State Pension?

The state pension is a regular payment from the UK government to individuals who have reached state pension age and have made enough National Insurance (NI) contributions throughout their working lives.

As of April 2025, the weekly rates are:

• £230.25 for the full new flat-rate pension (for those retiring after April 2016)
  That’s an annual increase of £472
• £176.45 for the full old basic state pension (for those retiring before April 2016)
  That’s an annual increase of £363

To receive the full amount, you usually need 35 years of qualifying NI contributions. If you have gaps perhaps due to time abroad or care giving you can make voluntary payments but only for up to six previous years (as of April 6).

What Is the ‘Triple Lock’?

The triple lock was introduced in 2010 to ensure pensions keep pace with the cost of living. Under this system, the state pension rises every April by whichever is the highest of:

• Inflation (based on Consumer Prices Index from the previous September)
• Average UK wage growth (from May to June of the prior year)
• A flat 2.5% increase

In April 2025, this meant a 4.1% pension rise.

Is the Triple Lock Sustainable?

• The annual cost is expected to reach £15.5bn by 2030
• The overall state pension spend is around £138bn—about half of total government benefit expenditures

As a result, think tanks like the Institute for Fiscal Studies have proposed scrapping the triple lock as part of broader pension reforms.

Who Can Get the State Pension?

Currently, over 12 million people receive state pension payments. Age eligibility depends on birth year:
6 Oct 1954 – 5 Apr 1960 – 66 | On/after 5 Apr 1960 – gradual rise to 67 | On/after 5 Apr 1977 – expected rise to 68 by 2046, possibly 71 by 2050.

What Is Pension Credit?

Pension credit is an income top-up for retirees with lower earnings. It also rose by 4.1% in April 2025:

– £227.10/week if you’re single

– £346.60/week if you’re a couple

Even if your income is higher, you might still qualify – especially if you have a disability or are a carer. Pension credit may unlock access to:

• Housing benefit
• Council tax reduction
• Help with heating costs
• Warm Home Discount Scheme

Understanding tax codes is essential for ensuring a payroll scheme runs smoothly and employees are taxed correctly. Tax codes determine how much Income Tax is deducted from each employee’s pay through PAYE (Pay As You Earn). While HMRC issues tax codes, it is the employer’s responsibility to apply them accurately — and to spot potential issues when they arise.

What Is a tax code?

A tax code tells the employer how much tax-free income an employee is entitled to in a tax year. The most common tax code is 1257L, which means the employee is entitled to the standard Personal Allowance of £12,570 (as of the 2025/26 tax year). The numbers indicate how much tax-free income is allowed, while the letters signal specific instructions from HMRC.

Common tax code suffixes include:

• L – Standard Personal Allowance.
• BR – Basic Rate (20%) applied to all earnings; no Personal Allowance.
• D0/D1 – Earnings taxed at higher or additional rates (40% or 45%).
• K – Employee has taxable benefits or unpaid tax that reduces their allowance.

Employers receive an employee’s tax code either through a P45, a starter checklist, or directly from HMRC via a tax code notice.

Why Tax Codes matter for employers

Accurate application of tax codes is critical — not only to ensure the right amount of tax is paid but also to avoid penalties. If you use the wrong tax code, your employee could overpay or underpay tax, leading to potential complaints and corrective action later on.

Employers must also update tax codes when notified by HMRC. Notices can come at the start of the tax year, when an employee’s circumstances change (e.g., new benefits, change in employment), or following a tax review.

Employees with two jobs: how it affects tax codes

If an employee has more than one job — or another source of PAYE income such as a pension — it’s likely their Personal Allowance will only apply to one job. This is typically their main or higher-earning job. Their second income source may receive a BR, D0, or D1 tax code, meaning all income from that employment is taxed at the relevant rate, with no tax-free allowance applied.

Alternatively, their tax code might be split across their jobs or their job and pension so they are taxed on both.

Employers must apply the code HMRC assigns, even if it results in higher deductions. If an employee questions a tax code applied to their second job, they should be directed to HMRC as only HMRC can amend or reallocate allowances between jobs.

Staying Compliant

Here are some practical steps employers should take:

• Always apply the tax code provided by HMRC.
• Use the starter checklist if a new employee doesn’t have a P45.
• Encourage employees to check their personal tax account if they raise tax code queries.
• Keep records of all PAYE submissions and correspondence with HMRC.

Final Thoughts

Tax codes can seem small, but they have a big impact on an employees’ take-home pay and the employer’s compliance. Understanding how they work — especially when dealing with multiple jobs or mid-year changes — helps an employer stay on top of payroll, avoid errors, and maintain trust with the workforce. When in doubt, always refer back to HMRC guidance or speak to us.

There’s been quite a lot in the news recently about pension credits, especially in connection with the changes in winter fuel payments. So, this month, our blog is all about these benefits and a look at who can claim them.

What are Pension Credits?

Pension Credits is a benefit for people over state pension age, i.e. 66 years and should top up the income of those who only have a small pension. It comes in two parts:

1. Guarantee Credit – This tops up the weekly income to a minimum level. For 2025/26, that’s £227.10 per week for a single person and £346.60 for couples.
2. Savings Credit – This is an extra payment for people who saved some money towards their retirement, such as through a workplace pension. However, it’s only available to those who reached State Pension age before 6 April 2016.

There may be further income available to those with a disability, other responsibilities such as caring or childcare or with additional costs such as some housing costs. The claimants do not need to have paid national insurance to receive the benefit and it is paid tax-free. Claimants can have up to £10,000 in savings and still be entitled to pension credits

Can employees claim Pension Credits?

This is where this benefit could be of interest to employers or those managing a payroll scheme – the answer is yes.

If the total of all income comes below the minimum amount, then the employee can still claim pension credits. The amount someone earns is taken into account but the first £5 for single people and the first £10 of joint earnings for couples is ignored in most cases.

Other reasons to claim Pension Credits

Pension credits in their own right can bring in vital additional income to pensioners who otherwise would be on a very low fixed income. But successfully claiming pension credits can unlock a number of other benefits. Until 2023, cold weather payments were made to all pensioners regardless of income and were not means tested. This changed last year when the payments were limited to those claiming pension credits although there is some suggestion this may change again.

Other benefits unlocked by pension credits include:

• Free TV Licence (if you’re over 75)
• A Council Tax discount
• Help with NHS costs such as prescriptions, dental costs, and transport for hospital appointments
• Help with housing costs such as housing benefit and mortgage interest support
• Help with heating costs through the Warm Home Discount Scheme

Applying for Pension Credit

Making an application for pension credit is straightforward via the government website, by phone or in writing by completing the claim form.

If an employee is only working a few hours a week, or has a low pension income, it would be worth checking on eligibility as it could make a real difference to the amount of money they receive. We would also encourage employers to ensure their qualifying employees have information on pension credits.

We’re now in that great time of year when bank holidays seem to come thick and fast. We’ve just had two days for Easter, and they will be rapidly followed by May Day and then a couple of weeks later, the late May bank holiday at Whitsun. So, it got us thinking – when did bank holidays start and how long have workers been enjoying them?

Origin of bank holidays

The idea of bank holidays first came from Sir John Lubbock who thought that a day when financial institutions closed would enable workers to enjoy more leisure time. The Bank Holidays Act was passed in 1871 which allowed for holidays on Easter Monday, Whit Monday in May, the first Monday in August and Boxing Day. At this time, it was only the banks that were allowed to close – which is why they’re called Bank Holidays – but fairly soon, other businesses and schools started to mark the public holidays too.

But workers were marking key dates in the calendar with holidays long before 1871. May Day in particular has many customs that go back thousands of years – the Celtic festival of Beltane celebrated the end of winter and the start of summer when fires were lit and people danced around the may pole, and many of those traditions continue today.

Modern Bank Holidays

The number of bank holidays in the UK has grown slightly since the original 1871 Act and the official public holidays are now:

• New Year’s Day
• Good Friday
• Easter Monday
• May Day (first Monday in May)
• Whitsun or Late Spring Bank Holiday (last Monday in May)
• Late August Bank Holiday (England, Wales and Northern Ireland only)
• Christmas Day
• Boxing Day

In Scotland, there is also an additional bank holiday on 2^nd January and for St Andrew’s Day at the end of November. In addition, the August bank holiday is on the first Monday in August and not the last.

Other one-off bank holidays can be granted by Royal Proclamation such as the ones we enjoyed for the Jubilee and for the 75^th anniversary of VE Day in 2020.

It is worth pointing out though, that employers can include bank holidays in an employee’s statutory leave entitlement and employers are not legally required to give bank holidays as paid leave so a day off on a bank holiday isn’t guaranteed.

Patron Saint days

As mentioned above, Scotland has a bank holiday for their patron saint St Andrew in November. Northern Ireland also has the day off to celebrate St Patrick’s Day in March but the other home nation saints – St David in Wales and St George in England – don’t have the same although there is regular discussion about introducing them.

Here in Cornwall, we celebrate St Piran’s Day on 5^th March and each year, the Council and Government is urged to recognise that special day by granting a bank holiday in Cornwall, so far without much success! We hope you all enjoy the next bank holiday and as always, if you need any help preparing your payroll or advice on statutory leave for your employees, get in touch.