Opinion: wasted contributions, shifting retirement ages, stealth tax hikes and other unfair things about the State Pension in 2025

With so many Brits feeling let down by the retirement system, we reveal the winners and losers under current rules.

The State Pension is one of the cornerstones of retirement in the UK.

However, there’s no denying the system remains riddled with injustices and certain groups fare far better than others.

Whether it’s how much we get, when we get it, or how it’s taxed, constantly shifting rules leave many Brits feeling short-changed.

In this article, we reveal six of the most unsettling inequalities surrounding the State Pension – and why these need to change.

1. A penalty for dying young

When it comes to pension controversies, some stories immediately grab the media’s attention. Others, however, tend to sneak under the radar.

Take, for example, the question of what happens to your existing contributions if you pass away before reaching retirement age.

If you die before reaching this milestone, no payments are made to your estate or loved ones – meaning you can pay into the system for decades without any reward.

In theory, this is because the State Pension is not a pot of money that accumulates like a private pension. 

Instead, it is a pay-as-you-go system where payments cease upon a person’s death.

Your spouse or civil partner may inherit some of your contributions if you were already receiving your payments or had deferred claiming at the time of your death. 

However, this depends on the date you reached retirement age and the level of your National Insurance (NI) contributions.

And it’s sad to say that this scenario is surprisingly common.

According to research from Marie Curie, one in seven deaths during 2022 occurred in those who had yet to reach the Government pension age, with increasing retirement ages likely to push more people into this bracket.

2. The goalposts keep shifting

If you’re under 50, there’s a good chance you don’t know when you’ll get your State Pension as the retirement age keeps creeping up.

At present, you’ll qualify at 66, rising to 67 between 2026 and 2028.

The age is then expected to rise to 68 sometime in the 2040s – or possibly earlier.

Although successive governments have insisted that the retirement age needs to rise to reflect increasing life expectancies, this argument doesn’t take regional and class-based inequalities into account.

According to Marie Curie’s data, just under 9% of deaths occurred under the age of 66 in Dorset, while this figure is 22% in Manchester.

Worse still, the number stands at more than 25% in the London borough of Hackney.

3. Double the number of pensioners paying tax

After years of paying into the system, you may imagine that retirement savings would be tax-free.

However, any money you receive post-retirement still counts as taxable income and is subject to the same levies you paid during your working life.

And with Income Tax thresholds since 2021, more pensioners than ever are now paying Higher Rate tax.

In fact, Steve Webb, former Pensions Minister, estimates that the number of pensioners now paying income tax at the Higher (40%) or Additional (45%) rates has more than doubled in just four years. 

In 2021/22, around 494,000 pensioners were affected; today, that number has surpassed one million.

Remarkably, we're on track to see anyone receiving the full State Pension being automatically taxed within the next two years, despite not having any other income.

That's because the Personal Allowance is frozen at £12,570 until 2028 at least, but the State Pension increases each year thanks to the triple lock. 

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4.Women still lose out

As women often take time out of the workforce to care for children and older relatives, they often tend to end up with patchy NI records, meaning smaller State Pensions.

According to data from the Office for National Statistics, some 92% of fathers with dependent children work, compared with just 76% of women.

Overall, this means many women nearing retirement age find they fall short of the 35 qualifying years needed to get the full pension.

Worryingly, this isn’t the only issue as other women, primarily born in the 1950s, felt they were not properly informed of how changes to the retirement age could impact them.

Although the WASPI (Women Against State Pension Inequality) campaign continues to call for compensation for those affected, no government has acted on it.

5. Two-tier system

When the Government introduced a “new” State Pension system in 2016, it was billed as a way to make things simpler for older people.

However, the move created a dividing line between those who reached State Pension age before and after April 2016.

People retiring after this date can qualify for the flat-rate pension of £221.20 a week during the current tax year.

In contrast, older retirees languish on the two-tier system, made up of Basic State Pension and Additional State Pension, often receiving far less overall.

This has left many feeling like they’re trapped in an outdated system – and penalised simply for being born a few months too early.

How much the State Pension pays in 2025/26

6. Pensions frozen for (some) ex-pats

This is one of the most baffling and unfair quirks of our State Pension system: where you live in retirement can impact whether your pension increases.

If you retire to certain countries, such as those in the European Economic Area, Gibraltar or Switzerland, your payments increase each year in line with the triple lock.

But if you move to one of the so-called “frozen” countries – such as Australia, Canada or New Zealand – your payouts remain at the rate they were when you moved abroad.

That means tens of thousands of older British expats, many of whom worked their whole lives in the UK and paid NI contributions in full, are stuck with pensions that shrink in real terms every year.

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The bottom line

The State Pension is meant to be a safety net for everyone, but too many Brits are falling through the gaps.

Whether it’s due to gender, geography, age, or simple bad luck, it can feel as though unfairness is baked into the system.

Have you been a victim of any of these injustices? We’d love to hear your thoughts in the comments below.