Pensioners are on course for a £500 boost to the state pension next April, new figures suggest. But it means the total state pension would exceed the tax-free personal allowance for the first time - so that people are forced to pay income tax even if this is their only source of income.
Triple lock and wage growth
Under the triple lock, payments go up each year by the highest of inflation, average earnings and 2.5%. Average wage growth was 4.1% between April and June, according to figures released by the Office for National Statistics, which suggests the state pension is likely to go up by around £500.
Labour has previously promised to ensure people who depend entirely on the state pension are exempt from income tax, and campaigners are now demanding that the Government explain how it plans to keep its pledge.
Former pensions minister's warning
Former pensions minister Sir Steve Webb said: “Under the triple lock formula, the new state pension will rise next April by the highest of the growth in wages, prices or 2.5%.
"Based on today’s figures, it is highly likely that it will be average earnings growth which comes out on top."Unless things change sharply in the next month, those on the new state pension can expect to see an increase of around £500 per year next April."
Sir Steve, a partner at pension consultants LCP, urged the Government to set out how it will stop OAPs with no income other than the state pension being pulled into paying tax, as the increase will take payments above the £12,570 threshold.
He said: "But the sting in the tail is that this will take the standard rate of the new state pension above the tax threshold.
"We therefore urgently need to know how the government plans to fulfil its pledge to make sure that those wholly dependent on the new state pension will not be charged income tax next year."If earnings growth is unchanged next month, the new state pension would go up to £251.20 a week, which is just over £500 per year.
Campaigners demand action
The Silver Voices campaign group is calling on the Government to increase the personal allowance for pensioners.
Director Dennis Reed said: “Labour is now on a collision course with the problem it should have sorted out two years ago.
"The basic new state pension will be taxed next year unless urgent action is taken at this year’s Budget."Rachel Reeves promised a solution last year but her plan would create many more anomalies than it would solve."Pensioners with the same pension income would be taxed differently which must be unlawful."The only fair solution is to increase the personal allowance for all pensioners to avoid the state pension system being undermined by this invidious threshold freeze."Our mass petition to raise the allowance by £1,000 and then to update it in line with the triple lock currently stands at over 210,000 signatures."
Former chancellor Rachel Reeves confirmed last year that people whose only income is the state pension would not have to pay income tax when it overtakes the personal allowance, which has been frozen since 2021. The Department for Work and Pensions has been contacted for comment.
