The full new state pension will rise by 4.8% next April to £12,547 a year—just £23 below the frozen personal allowance—but Aegon warns that from 2027/28 many pensioners could face income tax bills as triple-lock increases push payments above the threshold.
Steven Cameron, Pensions Director at Aegon, comments:
“As Budget week kicks off, state pensioners have received welcome confirmation that their state pension will increase in line with the triple lock next April, by an above-inflation increase of 4.8%, bringing the full new state pension up from the current £11,973 a year to £12,547. While this was a Manifesto Commitment, there were real concerns that the Chancellor might have reneged on this, instead focusing on ‘working people’.
“While welcome, the increase does come with a sting in the tail for future years. Under the triple lock, the full state pension will increase by a minimum of 2.5% in future years, meaning in 2027/28 it will be at least £12,861. This is above the personal allowance of £12,570, which is already frozen until April 2028, with speculation of an extended freeze until 2030. This means someone whose sole income is the full new state pension will face a tax charge on the excess, a minimum of £58 a year – something many will see as a case of giving with one hand and taking with the other.
“Currently, there is no facility to deduct tax direct from state pensions, with income tax on overall retirement incomes being deducted from private and workplace pensions. So those with solely a state pension could face receiving letters from the taxman demanding they pay the tax due. While of modest amounts, this could create anxiety amongst many vulnerable pensioners.
“Clearly, there’s also a cost of sending out tax demands and administering payments, and this could wipe out much of the increased tax due, which might justify waiving particularly small tax bills. However, if the Budget includes an extended personal allowance freeze, the amounts due will rise year on year making any waiver increasingly unlikely.
“We urge the Government to be clear with affected state pensioners if they can expect to receive tax bills in future years.”
