State pensioners under the age of 77 who retired on or after April 2016 will see their state pension exceed the HMRC tax threshold starting from April 2027. The full new state pension is set to rise to £13,036 per year, breaking the £12,570 personal allowance for the first time.
Triple Lock Uplift Confirmed
The Office for National Statistics (ONS) reported on Wednesday that Consumer Prices Index (CPI) inflation was 3.5% in September, up from 3.1% in August. However, this does not exceed the 3.9% wage growth figure already published, confirming the triple lock calculations for the upcoming uplift.
Someone on the full new state pension—who reached state pension age after April 2016 and is aged no older than 77—will receive £250.70 per week from next April, up from £241.30 per week currently, provided they have a full National Insurance record.
Tax Implications for Pensioners
The personal tax allowance is planned to remain frozen at £12,570 until 2031 unless the freeze is lifted sooner. The Government has announced that state pensioners wholly dependent on the DWP's new state pension or the old basic pension, with no increments, will not have to pay tax even if they exceed the threshold.
However, many pensioners will not qualify for this exemption and will remain liable to pay tax on their state pension, as has always been the case, particularly those with a private pension or savings. This marks the first time that state pension payments alone will break the threshold, at £13,036.
Budget Details and Expert Comment
Further details are expected in the Budget on Wednesday regarding who will lose the exemption and the loopholes that may allow pensioners 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."
Trott added: "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."
The spokesperson also noted: "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."
