Payment rates for the state pension go up each April
State pensioners have been urged to prepare themselves for a key tax change as payments continue to increase in line with the triple lock.
Payment rates are adjusted each April in accordance with the triple lock metric, which ensures payments rise in line with the highest of either 2.5 per cent, the rate of inflation, or the increase in average earnings.
How much payments could go up next year has been put in the spotlight as the most recent inflation figures came in at 3.8 per cent for the year to July.
However, as payments continue to rise, the full new state pension alone could soon be subject to a tax bill.
You can earn up to £12,570 a year without paying tax – but the full new state pension is already £230.25 a week, or £11,973 a year, just £600 away from attracting a HMRC bill.
Experts at savings provider Shepherds Friendly said: “Due to the extremely high levels of inflation the UK has experienced since 2020, state pensions have been increasing at a rate that some experts believe to be unsustainable in the long term.
“With pensions expected to surpass the frozen tax-free allowance limit next year, which will remain unchanged by the Government until 2028, more retirees will be pushed into the tax-paying bracket.
“As a result, pensioners should begin to take into account that they may soon need to pay income tax on their pensions should no changes be made to current status-quo.”
The group urged pensioners with a low income to check if they are eligible for Government support, such as the much-underclaimed benefit, Pension Credit.
This DWP benefit provides a top-up to your weekly income, raising it to £218.15 for single claimants and up to £332.95 for couples.
You can get extra amounts added to this income top-up depending on your circumstances, such as if you care for another adult or have a severe disability.
The rising cost of the state pension could force the Government to make the system less generous, such as by changing the triple lock or increasing the state pension age.
In light of these potential changes, the savings experts encouraged those of working age to be building up their retirement savings.
The Shepherds Friendly team said: “Those still working part-time or receiving self-employed income might consider making additional contributions to a private pension to help with costs once they retire from work completely.
“For those looking to retire in the near future, they should consider how their income can be built up by saving into a tax-free ISA, growing their savings through investments where possible, and utilising workplace pension schemes to secure their future income during retirement.
“Due to the increasingly aging population and the context of economic uncertainty, it can be hard to predict what the future of the triple lock will look like, so it’s always best to have a financial back up plan in place where possible.”
