Every retired person claiming the full new state pension is at risk of paying income tax for the first time as the triple lock drives up payments in line with surging inflation.
The pension will rise to £12,544 a year in 2028, according to analysis of figures from the Office for Budget Responsibility (OBR) by Canada Life - just £26 below the threshold for paying the basic rate of income tax. It means that if inflation slightly overshoots the OBR estimate, hundreds of thousands of pensioners will become taxpayers for the first time since retirement.
Jeremy Hunt has confirmed that he will keep the triple lock, a promise to increase the state pension by whichever is the largest of inflation, wage growth and 2.5 pc. This means that the new state pension - currently £9,628 - will rise by around 30 pc in the next six years according to the OBR. Meanwhile, the Chancellor is freezing the tax-free personal allowance at £12,570 until 2028. If the state pension eventually exceeds the personal allowance, the 20 per cent basic rate of income tax will be due on earnings above the threshold. More than 12 million retirees paid the state pension will get a record 10.1 per cent increase in their income next year alone.
The new state pension will rise to as much as £10,600 a year, and the older basic state pension for those who qualified before 2016 will increase to as much as £8,122. The state pension increased by only 3.1 pc in 2022 after the triple lock was temporarily scrapped when the pandemic exaggerated wage growth figures. Steven Cameron, of the pensions specialist Aegon, said that for most retirees had both a private pension and a state pension, and the private schemes were tasked with deducting tax.
