The state pension is set to rise 4.7 percent next year under the triple lock
State pensioners have been issued a warning that they could be hit with an unexpected tax bill from HMRC. As state pension payments rise, more people are finding themselves liable to pay income tax. The full new state pension already stands at £230.25 a week, or £11,973 annually.
This is merely £600 short of the personal allowance threshold, which permits a person to earn up to £12,570 without being subject to income tax. Mark Pemberthy, benefits consulting leader at Gallagher, said that many state pensioners are already paying this tax, but problems could arise for people beginning to pay the tax when their income increases.
He said: “The freezing of the personal allowance until at least April 2028 means that this will be a mainstream issue for the growing proportion of pensioners receiving the new state pension – particularly for those where the state pension is their only source of income in retirement.
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“HMRC has a simple assessment process for collecting income tax, but this results in people getting a request for payment of unpaid tax at the end of the tax year. There is a big risk that this will lead to a lot confused and unhappy people in April/May 2027 unless there has been a very effective communication campaign in the meantime or a significant change in policy.”
The triple lock is expected to boost state pension payments by 4.7 percent next year, raising the full new state pension to £241.05 a week, or £12,534.60 a year. The triple lock guarantee means the state pension rises each April in line with whichever is highest of 2.5 percent, the increase in average earnings or inflation.
As the costs of paying for the state pension continue to escalate, some experts question whether the Government can maintain the triple lock much longer. Mr Pemberthy said: “With public finances already under strain, reform is needed soon to avoid placing an unfair burden on future generations.
“The imminent Pension Commission will look at what is required to build a future-proof pensions system that is strong, fair and sustainable, and we anticipate that this will recommend an alternative to the triple lock when it publishes its findings in 2027. We hope that this will have broad political consensus and be the foundation for a long term sustainable future pension strategy.”
Another modification the Government can make to curb the rising costs of the state pension is to raise the access age. The state pension age currently stands at 66 and is set to rise to 67 between April 2026 and April 2028.
It’s scheduled to increase once more from 67 to 68 between 2044 and 2046. A previous review of the state pension age proposed an earlier shift to 68, but this was not adopted by the previous Conservative Government.
The Government has declared that another review of the state pension age will be conducted. Labour has yet to make clear if it will make any changes to the state pension as more people face being pulled into the income tax bracket.
