State pensioners could face a £98.48 income tax bill from HMRC if the full new state pension rises by 4.1 per cent next April, according to financial experts. The increase, driven by the Government's triple lock pledge, would push annual payments above the £12,570 personal allowance for the first time.
The triple lock guarantees that state pension payments rise each April in line with the highest of 2.5 per cent, the rise in average earnings, or inflation. Recent figures suggest earnings growth will trigger a rise of around 4.1 per cent, a level that would take the full new state pension from £241.30 a week to £251.20 a week, or from £12,547.60 a year to £13,062.40 a year.
Triple lock and tax threshold impact
Michele Tieghi, financial expert and founder of comparison website psyfi money, said: "Recent figures show that the increase will most likely be between 4 and 5 per cent, with 4.1 per cent being a more specific estimate when looking at earnings growth."
Andy Burnham, the new Labour Party Prime Minister, has confirmed he would keep the triple lock amid speculation it could be scrapped. However, the rise would lift the full new state pension above the £12,570 personal allowance limit, meaning those on the state pension alone would have to pay income tax on their payments.
The Government has committed to introducing a policy to ensure people in this situation do not have to pay the levy, but the full details of how this will work have not been made public yet, with the details described as unclear and murky.
Potential tax bill for pensioners
If payments were to go up 4.1 per cent, the full new state pension would be £492.40 above the personal allowance, the personal finance expert has warned. This would mean claimants on the state pension alone would have to pay a £98.48 tax bill.
Mr Tieghi said there is "a lot of uncertainty" around how this policy will be rolled out. He added: "It most likely won't be as simple as giving state pensioners a new tax code, as the state pension is paid without the deduction of tax."
Alternatively, the Government could introduce an extra allowance, or special exemption for state pension only pensioners, according to the expert.
Next steps and clarity needed
The Department for Work and Pensions (DWP) has not yet published the full details of how the policy will protect pensioners from the tax bill. The outcome will depend on the final earnings growth figures and the Government's chosen mechanism for implementing the exemption.
Until the details are clarified, pensioners on the full new state pension alone face the prospect of a £98.48 annual tax charge from April.
