State pensioners born between 1951 and 1960 face the prospect of HM Revenue and Customs (HMRC) 'taking back' cash from their state pension as frozen tax thresholds and fiscal drag bring them closer to paying income tax. The full new state pension is now worth £12,547 per year, which is paid to those born after 1951 (for men) and 1953 (for women).
Triple Lock and Frozen Thresholds
The Triple Lock guarantee increases the state pension each year by the highest of earnings growth, the Consumer Price Index (CPI) inflation rate, or 2.5 per cent. With the state pension age currently set at 66, pensioners born before 1960 are affected. The full new state pension is now just £23 below the Personal Allowance income threshold of £12,570, which is frozen until 2031.
Derence Lee, Chief Finance Officer at Shepherds Friendly, commented: "With the full New State Pension rising to £12,547 in April, and Personal Allowance now frozen at £12,570 until 2031, more retirees are edging dangerously close to paying income tax on their State Pension."
Impact of Tax-Free Allowance Freeze
Lee added: "The Triple Lock has played a vital role in helping pensioners keep pace with the high inflation seen in recent years. However, if the tax-free allowance remains frozen, some of the recent State Pension increases could effectively be taken back through income tax. For pensioners who rely mainly on their State Pension to cover everyday essentials, even a small tax bill could make a noticeable difference to their finances."
Chancellor's Assurance
Labour Party Chancellor Rachel Reeves has ruled out tax bills for state pensioners living solely off the state pension. However, concerns remain that those with modest private pension pots or other income could be dragged over the allowance threshold.
Speaking in an interview with Martin Lewis, the ITV and BBC star, Ms Reeves said: "If you just have a state pension, we are not going to make you fill in a tax return of any type." Pressed on whether these pensioners would need to pay tax at all, she added: "In this Parliament, they won't have to pay the tax. We're looking at a simple workaround at the moment."
