State pensioners with additional income are at risk of receiving tax bills from HMRC, as the gap between the full new State Pension and the frozen personal allowance narrows to just £597. The warning comes from Derence Lee, Chief Finance Officer at finance firm Shepherds Friendly, who noted that even a small tax bill could make a noticeable difference to pensioners' finances.
Prime Minister's Pledge to Shield Pensioners
Labour Party Prime Minister Andy Burnham has vowed to shield Department for Work and Pensions (DWP) state pensioners from HMRC if they live solely off the state pension. However, those with additional income are still exposed to potential tax liabilities.
Lee highlighted the growing tension in the system, stating: "The triple lock has been crucial in helping pensioners keep pace with the current cost of living, and while the UK's higher ranking in the research reflects the boost provided by the triple lock, it also highlights a growing tension in the system."
The £597 Gap
With the full new State Pension rising to £11,973 in April and the personal allowance frozen at £12,570, more retirees are edging closer to paying income tax on their State Pension. The difference between these two amounts is just £597, meaning that any additional income, such as from a private pension or part-time work, could push pensioners over the threshold.
Lee explained: "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."
Impact on Pensioners
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. Lee advised that pensioners should check whether they are eligible for Pension Credit, which can top up weekly income for those on lower earnings.
He also suggested that those still working part-time may wish to consider additional private pension contributions, while anyone approaching retirement should consider reviewing how ISAs, workplace pensions and diversified investments can help build a more resilient income stream.
Lee concluded: "Clear guidance from the government on pension taxation and savings would give retirees certainty and peace of mind, but until then, pensioners should check whether they’re eligible for Pension Credit, which can top up weekly income for those on lower earnings. By preparing today, pensioners give themselves the best chance to ensure their income keeps pace with costs and maintain a sense of financial stability."
