State pensioners who retired in or after April 2016 and are on the new state pension will receive a boosted £13,036 a year, tax free, under Prime Minister Andy Burnham. Mr Burnham and Chancellor John Healey will confirm the triple lock figures in their Budget on Wednesday, October 28, and have already committed to carrying forward a tax exemption for state pensioners first announced by former Chancellor Rachel Reeves.
Triple Lock Uplift Confirmed
The triple lock is set to be axed, but not until 2030. This means that next April, the state pension will see an annual rise in line with inflation, wages, or 2.5% – whichever is higher as normal.
The Office for National Statistics (ONS) said on Wednesday that the rate of Consumer Prices Index (CPI) inflation was 3.5% in September, accelerating from 3.1% in August. But this does not beat the 3.9% wage growth figure that had already been published. This means the Triple Lock calculations with confirmed uplift figures are now known.
Weekly and Annual Payments
This would put someone on the full new state pension, so those who hit state pension age after April 2016, on course to receive £250.70 per week from next April – up from £241.30 per week currently, if they have a full National Insurance record, or £13,036 per year.
But with the personal tax allowance planned to be frozen at £12,570 until 2031 unless the freeze is dropped sooner, some pensioners are heading towards being caught within the tax net – with the annual new state pension poised to be pushed up to around £13,036 next year from the triple lock boost.
Tax Exemption Details
That is why the Government has already announced that state pensioners who are wholly dependent on the DWP's new state pension – with no private pension – or the old "basic" pension, "with no increments" will not have to pay tax even if they break the threshold, keeping Rachel Reeves' policy in place.
Many state pensioners will not qualify for this exemption and as such will be liable to pay tax on their state pension, as they always have, as many state pensioners will have a private pension or savings. This is not in itself a new development - the state pension has always been taxable, and households who are, for example, still working, would lose some of their DWP state pension payments to tax once their earnings and state pension were added together and exceeded the £12,570 threshold. This will continue in April, but it will mark the first time that the state pension payments themselves already break the threshold, at £13,036.
Further details are anticipated in the Budget this Wednesday as to who will lose the exemption and the loopholes that will allow a pensioner to keep it.
Claire Trott, head of advice at St James's Place, said: "While the uplift in income will be welcomed by many, it also marks a significant milestone, with the full new state pension exceeding the £12,570 personal allowance for the first time. Although those receiving only the state pension are not expected to face a tax bill, pensioners who draw on other sources of income, such as workplace or private pensions, savings or earnings from work may find themselves with a higher tax liability as a result. It's therefore worth taking a closer look at your retirement income ahead of April to make sure you understand what the changes could mean for you and plan accordingly."
A Government spokesperson said: "We are committed to the triple lock for the rest of this Parliament, and the adjusted triple lock will build on the gains the policy has made for pensioners in raising the state pension. This means the state pension will always increase by at least the highest of 2.5%, CPI inflation or a new earnings link, so that the state pension will never fall below its record high level when we adjust the current triple lock. We also know energy prices weigh heavily on people's minds, which is why, alongside giving millions of pensioners a winter fuel payment, we have expanded the £150 warm home discount to six million households and cut VAT on energy bills."
