The UK state pension will jump 4.7% next April to about £12,534.60 a year, yet that figure sits barely £35 below the frozen £12,570 personal allowance, leaving hundreds of thousands of retirees on the brink of paying income tax on even modest extra earnings.
This is the warning from Nigel Green, chief executive of global financial advisory deVere Group, warns that the headline increase masks a serious problem.
“The state pension is now almost level with the personal allowance,” he says.
“Any private pension income, savings interest or taxable benefits will push people over the threshold. Many who have never paid tax in retirement will soon find themselves in HMRC’s sights.”
The government’s triple lock, which raises pensions by the highest of inflation, wage growth or 2.5%, has driven this rise.
With the allowance frozen until at least 2028, the two policies are colliding.
“If nothing changes, the state pension will overtake the personal allowance entirely within a few years,” he explains.
“That would make every pound of additional income taxable for millions.”
HMRC figures already show about 8.5 million pensioners paying income tax, up from roughly 7.8 million a year ago.
The Institute for Fiscal Studies expects hundreds of thousands more to join them over the next two years if policy stays the same.
“This is a stealth tax,” Nigel Green says. “It punishes those who planned responsibly and undermines confidence in retirement planning.”
He stresses that the government benefits from the mismatch. “Freezing the allowance is an invisible tax rise. It lifts revenue without headlines, but it falls hardest on those with fixed incomes—the very group the triple lock was supposed to protect.”
Nigel Green urges swift action. “Either raise the personal allowance in step with the state pension or conduct a transparent review of the triple lock.
“Without reform, what was meant to shield older people from inflation will steadily drain their income.”
He also advises retirees to prepare now. “Review finances before the new tax year. Use ISA allowances and time pension withdrawals carefully. Waiting for a tax bill is too late.”
The April uplift adds more than £560 a year, but higher-rate taxpayers could see the gain cut to around £330 once tax is applied. “What should be a welcome boost risks becoming a net loss,” Nigel Green concludes.
“This is not a distant concern. It begins next year.”
