State Pension Set for Rise – But More Retirees May Face Tax

From April, people drawing the state pension may see an increase of more than £500 a year, thanks to the government’s triple lock guarantee. The policy means the pension rises each year by whichever is higher: 2.5%, inflation, or average wage growth.

The latest figures from the Office for National Statistics suggest that the average earnings growth of 4.7% will be the measure used.

For those on the new state pension (anyone reaching state pension age after April 2016), the weekly amount for a full entitlement is expected to increase to £241.05, or £12,534.60 a year. That’s a rise of £561.60 compared with now.

For those on the old basic state pension, the increase is expected to take the full weekly payment to £184.75, or £9,607 a year, an annual rise of £431.60.

Tax Implications

While this is welcome news for pensioners’ incomes, there’s another angle to consider. The personal income tax allowance – the amount you can earn tax-free each year – is set to remain frozen at £12,570 until 2028. With the new state pension edging ever closer to this level, many pensioners who rely mainly on the state pension could find themselves paying tax for the first time by 2027.

While many pensioners already pay income tax due to other sources of retirement income, this freeze, combined with steady increases in the state pension, will pull more people into the tax net over the next few years. There’s also talk of the threshold freeze running to 2030, and our insight into Budget Speculation: Are Tax Rises Looming? sets out what else could change.

What This Means for You

Any rise in the state pension will provide some welcome relief against the continuing increases in the cost of living. However, with frozen tax thresholds, the effect on your disposable income may be less than you would first think.

Planning Ahead with Wilds

Planning ahead can make all the difference. Whether you’re approaching retirement or already drawing your pension, it’s important to understand how changes like this affect your overall financial position. A review of your income, allowances and tax planning could help you keep more of what you’ve earned.

At Wilds, we’re here to guide you through the numbers in plain English and give you clarity on the best steps forward. If you’d like to talk through your own situation, get in touch with our team – we’d be delighted to help.