The State Pension has risen to £12,548 a year under the Triple Lock, but the frozen Personal Allowance of £12,570 means retirees need just £22 of additional income before they start paying income tax. This is a sharp change from the 2021/22 tax year, when pensioners could earn more than £3,200 on top of their State Pension before crossing the tax threshold.
Triple Lock Boost vs. Frozen Allowance
The full New State Pension increased by 4.8% in April, following the Triple Lock guarantee that annual rises match the highest of earnings growth, CPI inflation, or 2.5%. While the boost leaves retirees nearly £1,300 better off compared to if the State Pension had only risen with CPI inflation at 3.8%, it also brings many dangerously close to paying tax. Those whose sole source of income is the State Pension will not pay tax, but any additional income—such as from private pensions, savings interest, or investments—can now push total income above the threshold.
Vanguard Analysis: Surge in Older Taxpayers
New analysis by Vanguard shows the number of taxpayers aged 66 and over jumped from 6.7 million in 2021/22 to 8.8 million in the last tax year—an increase of nearly 2.1 million people. James Norton, head of retirement and investments at Vanguard, warns: “The value of the Triple Lock is clear, with the inflation-busting increase confirmed. Our analysis shows that those receiving the full new State Pension are almost £1,300 better off compared to if there was just an inflation link in place. But with the Personal Allowance frozen, many pensioners will find they are paying tax for the first time or paying more than expected. A considered approach to retirement income is essential to avoid unnecessary tax.”
Impact on Retirees
The Personal Allowance is frozen at £12,570 until April 2031, meaning the gap between the State Pension and the tax-free limit will only shrink further with future increases. Retirees are urged to carefully manage additional income sources. Vanguard suggests drawing too much from private pensions could trigger avoidable tax bills, while leaving money invested longer may help reduce tax exposure. Couples are encouraged to plan finances together to make full use of both partners’ allowances, potentially lowering the overall tax burden.
Government Guidance
Guidance on GOV.UK states: “You pay tax if your total annual income adds up to more than your Personal Allowance. Your total income could include the State Pension, Additional State Pension, a private pension, earnings from employment or self-employment, any taxable benefits, and other income such as from investments, property, or savings.” Retirees can use the online tool at GOV.UK to check if they need to pay tax on their pension.
