People relying solely on the full new state pension are on course to breach the personal tax allowance for the first time after official earnings data put some pensioners in line for a potential rise of nearly £500 a year from next April.
asserted
data → rely → April
Under the triple lock guarantee, the state pension increases every April in line with whichever is the highest of total earnings growth in the year from May to July of the previous year, CPI (Consumer Prices Index) inflation in September of the previous year, or 2.5%.
uncertain
whichever → increase → year
But there were some suggestions that cracks in support for the triple lock policy may be revealed as pensioners are pushed over the personal allowance – and that pressure could rise to increase the state pension age, to help balance the costs.
uncertain
pressure → be → costs
However, these figures are subject to revision and the final piece of the triple lock puzzle will not come until inflation figures for September are published in October.
asserted
figures → come → October
Inflation currently stands at 2.9%, but figures on Wednesday are expected to reveal it jumped to 3.2% in August on the back of soaring fuel prices caused by the Iran war, according to Pantheon Macroeconomics.
uncertain
it → stand → Macroeconomics
If earnings growth is confirmed at 3.9%, this could add £9.40 a week to the full new state pension, taking it to £250.70, an increase of just under £500 per year, to around £13,036, according to experts.
uncertain
this → confirm → experts
With the personal tax allowance having been frozen at £12,570 since 2021, it means state pensioners will be caught within the tax net for the first time.
asserted
pensioners → freeze → time
The full “old” state pension could potentially increase to around £192.10 per week, reaching around £9,989 per year, if state pensions rise in line with earnings.
uncertain
pensions → increase → earnings
The Government has so far said pensioners who are wholly dependent on the new state pension – with no private pension – or the old “basic” pension, “with no increments”, will not have to pay tax, but pension experts said that how the policy will work is not yet clear.
asserted
work → say → tax
Former Liberal Democrat pensions minister Sir Steve Webb, who is now a partner at consultants LCP (Lane Clark & Peacock), warned the Government’s move to create a “tax amnesty” for pensioners will only protect one in 16 retirees.
asserted
move → warn → retirees
Sir Steve said: “Those on the new state pension can expect to see an increase of nearly £500 per year next April.
asserted
Those → say → year
“But the sting in the tail is that this will take the standard rate of the new state pension above the tax threshold.
asserted
this → take → threshold
“The Government’s plans to address this point are a mess, and likely to benefit only a small fraction of pensioners.
asserted
plans → address → pensioners
“They will also create unfairness between different groups of pensioners and between pensioners and low-paid workers, who do not qualify for any exemption.”
asserted
who → create → exemption
Rachel Vahey, head of public policy at AJ Bell, said: “Although we still need to see September’s inflation figure and any revisions to July’s earnings growth before we know for definite how much it will increase by in 2027, it’s looking very likely that the value of the full new state pension will surge past £13,000 – and the personal allowance – for the first time.”
asserted
value → say → time
She added: “The Government has said people in receipt of state pension income only above the personal allowance will not have to pay income tax on the benefit, although details on exactly how this will work remain thin on the ground.
asserted
this → add → ground
“Up to now, politicians of all stripes have pledged allegiance to the triple lock.
asserted
politicians → pledge → lock
“The longer this unexploded fiscal bomb is left untouched, the harder it will be to defuse – and the greater the chance proposed state pension age increases will need to be accelerated to balance the books.
asserted
increases → leave → books
“A sensible approach would be to set a target for the triple lock policy, most likely a value of the state pension as a proportion of median earnings, and then a pledge to peg state pension increases to earnings growth or inflation.
asserted
approach → set → growth
“Any party that wanted to oppose such an approach would need to present a credible alternative, and keeping the triple lock forever certainly doesn’t fit with the Government’s desire for long-term fiscal responsibility.”
asserted
keeping → want → responsibility
Ms Vahey said: “Collecting the little bits of tax owed from millions of pensioners was always going to be an administrative headache for the government.
asserted
Collecting → say → government
So it’s no wonder they’ve put their tax-collecting thinking caps on to find ways to avoid it.
asserted
they → ’ → it
“How this policy will work and how any tax will be collected remains to be seen.”
asserted
tax → work → ?
Jenny Holt, customer savings and investment director at Standard Life said: “The triple lock has played an important role in protecting the value of the state pension over time, and an earnings-linked increase would mean pensioners sharing in wage growth across the wider economy.
asserted
pensioners → say → economy
“At the same time, another increase above inflation is likely to add to the debate about the longer-term affordability of the triple lock, which has come under renewed focus over the past few weeks.
asserted
which → add → weeks
“There is a balance to strike between protecting pensioner incomes and ensuring the state pension remains sustainable over the long term.
asserted
pension → be → term
“Whatever approach is taken, giving people clarity and confidence about what they can expect from the state pension is important, particularly when they are making decisions about how much they need to save privately for retirement.
asserted
they → take → retirement
“It also underlines why it is important for people approaching or already in retirement to look at their income as a whole.
asserted
people → underline → whole
“Understanding what you are likely to receive from the state pension alongside workplace or private pensions and other savings – and how that income interacts with tax thresholds – can give you a much clearer picture of what you will actually have available to spend in retirement.”
asserted
you → understand → retirement
The Aporia
