Almost one million pensioners will be protected from paying income tax under plans that look set to be announced in the Budget this week. The Times reports that Chancellor John Healey will announce a rise in the tax-free personal allowance for low-income pensioners.
The new state pension is set to rise to £13,036 a year from next April, taking it above the personal allowance of £12,570 for the first time. The personal allowance is how much you can earn each tax year before you pay income tax.
But to protect pensioners that rely on just the state pension as their only source of income, it has been reported that their personal allowance will also rise to £13,036. It has then been suggested that it will rise in line with increases to the state pension over the course of this parliament.
Who will still pay income tax?
However, millions of pensioners with higher incomes, such as those with private pensions, or those who receive higher state pension amounts, will still pay income tax.
The state pension rises every April in line with the triple lock. The triple lock increases the state pension by whichever is higher out of inflation (using the previous September inflation figure), wages (average growth between May and July) or 2.5%.
For next year, it will rise by 3.9% in line with wage growth. This would put someone on the full new state pension on course to receive £250.70 a week from next April, up from £241.30 a week currently.
What about the basic state pension?
You may receive less than this if you have gaps in your National Insurance contributions. Someone on a full basic state pension would receive £192.10 a week, up from £184.90, under a 3.9% increase. This would put the basic state pension at around £9,989 per year. But many people on the old pension system receive additional top-ups that boost their income.
But it was announced last month that Prime Minister Andy Burnham plans to adjust the triple lock from April 2030 to help fund a new National Care Service in England. Under the shake-up, the state pension would rise by either inflation or 2.5% annually, but will only track average wages over time. The state pension overhaul would help to fund a new National Care Service in England.
