- An increase in the State Pension will be welcomed by pensioners but could mean higher tax bills
Clare Moffat, pensions expert at Royal London, explains why the State Pension increase could be a double-edged sword for those pensioners who are pushed into a tax-paying bracket for the first time, or end up paying more in tax.
“Around 12 million pensioners will receive more in their state pension from this weekend (6 April), but the extra monthly income may come with a sting in the tail for many. Thanks to the triple lock, the full State Pension increases to £11,541.90 for 2024/25, taking it to within a whisker of the amount receivable without paying tax. Any income – including retirement income – above the personal allowance of £12,570 is subject to tax.
“So, if someone’s income exceeds their personal allowance, which is not too difficult if they’re also receiving another pension every month, they will have tax to pay. And what many people don’t know is that although tax isn’t deducted from the State Pension, it forms part of their taxable income, and the tax will be taken from their other, (workplace or personal) pension.
“Retirees in a defined contribution pension and in drawdown can minimise the amount of tax payable. That’s because the income level can be altered to keep drawdown income below the threshold.
“Those in defined benefit schemes, where a fixed amount of pension is paid every month, like public sector schemes, will often increase in April too. This, alongside the State Pension rise, will push more income into taxable territory.”
