Understanding Taxes for 'State Pension' Income Type in Timeline Planning | Timeline Help Centre

Summary

• ‘State Pension’ is treated as a yearly income source in gross terms.

• No National Insurance (NI) contributions are applied to this income type.

• Income tax is calculated using the most recent tax rates and bands.

• The State Pension can be adjusted for inflation in line with CPI.

• A triple lock-style approach can be modelled using “Other Income” with a 2.5% collar.

Description

The State Pension is a cornerstone of retirement income planning. In Timeline Planning, it is treated as a gross annual income source, providing full transparency in cashflow modelling and tax calculations.

Advisers can input the gross annual State Pension amount. By default, this is set to £11,973 (2025/26), but it can be adjusted to reflect a client’s specific entitlement.

State Pension income can be indexed in line with the Consumer Price Index (CPI) to reflect inflation over time.

Modelling the Triple Lock

If you wish to approximate the triple lock, this can be achieved by selecting “Other Income” and applying a 2.5% collar.

In this case:

• If CPI is below 2.5%, the income increases by 2.5%.

• If CPI is above 2.5%, the income increases in line with the actual CPI.

This provides a practical way to reflect the minimum 2.5% uplift within long-term projections.

Step 1: National Insurance

No National Insurance contributions are applied to State Pension income.

This aligns with UK tax rules, as pension income received in retirement is not subject to NI.

Step 2: Income Tax

Income tax is calculated using the latest available tax bands and rates.

The gross State Pension is added to the total taxable income for the year. The relevant tax bands are applied sequentially, and the resulting tax liability is deducted to determine the net income shown in the plan.

Example

Let’s consider Joe, who receives an annual State Pension of £70,000.

Timeline Planning calculates his income tax as follows:

• £12,570 × 0% = £0

• (£50,270 − £12,570) × 20% = £7,540

• (£70,000 − £50,270) × 40% = £7,892

Total income tax: £15,432

Net annual income:
£70,000 − £15,432 = £54,568

Conclusion

The ‘State Pension’ income type in Timeline Planning provides a structured and transparent way to model guaranteed retirement income. By treating it as gross income, excluding National Insurance, and applying current tax bands, Timeline ensures accurate net cashflow projections.

With CPI indexation and the ability to approximate the triple lock, advisers can model State Pension income realistically — helping clients plan retirement with greater clarity and confidence.