Chancellor John Healey is expected to announce a major change to pensions in the Budget on Wednesday, October 28, which will affect around one million pensioners. The change relates to how those who rely solely on the full new state pension will be protected from paying income tax, as the pension is set to increase by almost £500 a year from April.
Triple Lock Increase Pushes Pension Above Tax Threshold
The Treasury has confirmed a crucial change to pensioners' tax thresholds as the state pension is expected to increase next April under the triple lock guarantee. The triple lock ensures the state pension rises annually by whichever is highest among total earnings growth measured from May to July of the previous year, CPI inflation in September of the previous year, or 2.5%.
Latest figures from the Office for National Statistics show that total wage growth, including bonuses, reached 3.9% in the three months to July, compared with 4.2% in the previous three-month period. Should earnings growth be confirmed at 3.9%, experts believe this could add £9.40 a week to the full new state pension, pushing it to £250.70 - an annual rise of just under £500, bringing it to approximately £13,036.
Protection for One Million Pensioners
This would place the pension above the £12,570 personal tax threshold, beyond which people begin paying 20% on their income. Chancellor John Healey is expected to reveal in the Budget how around one million low-income pensioners will be protected from paying income tax.
Speaking on BBC Breakfast, financial expert Dan Whitworth explained: "We already had a commitment from the Government that pensioners whose only income is the new state pension would not pay tax on it. What we're getting now is the detail of how that will happen."
Whitworth added: "Now this is because under the rules of the triple lock, the new state pension increases every year by whichever is higher - so inflation 2.5% or average annual wage growth. Now the new state pension is currently £12,548. Now, in April, because of the triple lock, it will go up to £13,036. Now, if that's your only income, it would push you above the personal tax allowance threshold of £12,570, so, you'd have to pay tax on nearly £500."
