Chancellor John Healey has confirmed that state pensioners whose only income is the full new or basic state pension will not pay income tax, even as payments rise above the frozen personal allowance threshold. The confirmation means the full new state pension will be worth up to £13,036 a year from next April, tax free for those who qualify.
Triple Lock Uplift Confirmed
The uplift follows the publication of the latest inflation and wage growth figures. The Office for National Statistics (ONS) said on Wednesday that the Consumer Prices Index (CPI) rate of inflation was 3.5% in September, accelerating from 3.1% in August. However, this does not beat the 3.9% wage growth figure already published, meaning the triple lock calculation is now confirmed.
Under the triple lock, the state pension rises each April in line with inflation, wages, or 2.5% – whichever is higher. The triple lock is set to be axed, but not until 2030.
Someone on the full new state pension, for those who reached state pension age after April 2016, will receive £250.70 per week from next April – up from £241.30 per week currently, if they have a full National Insurance record. That equates to £13,036 per year.
Personal Allowance Freeze and Exemption Details
The personal tax allowance is planned to be frozen at £12,570 until 2031 unless the freeze is dropped sooner. This had raised the prospect of some pensioners being caught in the tax net, as the state pension payments themselves will now break the threshold at £13,036.
The Government has already announced that state pensioners who are wholly dependent on the Department for Work and Pensions' (DWP) new state pension payments – with no private pension – or the old "basic" pension, "with no increments" will not have to pay tax even if they break the threshold. This keeps in place a policy first announced by now-ex Chancellor Rachel Reeves, and today it has been confirmed.
Many state pensioners will not qualify for this exemption and as such will remain liable to pay tax on their state pension, as they always have, because many will have a private pension or savings. 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.
Exceptions for Older Pensioners
More details on how the exemption will work and the exceptions are expected to follow. Older state pensioners who receive state pension 'increments' such as Additional Pension (AP) payments, or Second State Pension, will not be allowed to claim the tax exemption.
Many older state pensioners already pay tax on the payments they receive from the DWP, even though they have no other income, because the AP payments from the DWP can be up to £230.54 per week, on top of their £184.90 standard state pension payment. HM Treasury has confirmed to the Express that for older basic state pensioners, this exemption will only apply to those who don't have any 'increments', such as the additional pension schemes.
An HM Treasury spokesperson said: "Anyone whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that over this Parliament."
"By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest Personal Allowance in the G7."
