Rise in state pension set to leave pensioners ‘just a whisker’ under tax threshold
The new state pension is set to increase by more than £560 a year next April, meaning pensioners who rely solely on it could pay income tax for the first time from 2027.
The new State Pension is set to increase by more than £560 a year next April, meaning pensioners who rely solely on it could pay income tax for the first time from 2027.
Listen to this article
This climb will take the yearly new State Pension to £12,534 per year - just £36 short of the basic rate income tax threshold of £12,570.
This significant rise comes after the latest figures from the Office for National Statistics showed that total wage growth (including bonuses) grew by 4.7% in the quarter to July.
Wage growth is a condition of the Triple Lock Policy - the government commitment to uprate the basic and new State Pension every year by earnings growth, inflation, or 2.5%, whichever is highest.
The Labour government promised in their election manifesto to commit to the triple lock - first introduced by the Coalition Government in 2010.
Pat McFadden, the Work and Pensions Secretary, confirmed the Government's election manifesto promise on the pensions triple lock would be honoured.
He said: “This Labour government is committed to maintaining the triple lock for the course of this Parliament.
“That’s a commitment from the Labour government to the UK’s pensioners. It’s something that we said we’d do at the election and something that we will keep to.”
'Just a whisker'
However, head of retirement analysis at Hargreaves Lansdown, Helen Morrissey, has warned that the increase in the State Pension would put many pensioners extremely close to the income tax threshold.
She said: “If they receive the 4.7% uplift it takes their annual state pension to around £12,535 per year which leaves them just a whisker under the threshold of paying basic rate tax.”
The exact new State Pension figure will remain unconfirmed until the newest inflation figures are published in October, although it is thought unlikely that the rate of inflation will be higher than 4.7%.
This morning it was announced that inflation remains at 3.8% - the same as July.
Read more: UK steel industry ‘disappointed’ after plans for 0% US tariff shelved
Read more: Former Labour councillor charged with blackmail in Westminster 'honeytrap' scandal
The triple lock has long been the subject of great discussion, with many criticising it as unfair.
Some claim that current pensioners enjoy a higher standard of living than younger people may expect to in the future, and that the younger generation shouldn’t be expected to subsidise older people’s incomes to such an extent via the triple lock.
Ms Morrissey warned that the increase “will also add further pressure on the Government who are battling an already burgeoning State Pension bill”.