State pension warning over changes to tax allowances in the Budget | Personal Finance | Finance
There could be major changes to tax allowances for state pensioners in the Autumn Budget. Chancellor Rachel Reeves is expected to confirm the triple lock for next year’s state pension increase.
The policy guarantees payments go up in line with whichever is highest: 2.5 per cent, the rise in average earnings or inflation. One concern with the rising payments is that the full new state pension is close to using up all the personal allowance. This standard allowance means you can earn up to £12,570 a year without paying income tax.
But the full new state pension currently pays £221.20 a week, or £11,973 a year. The triple lock is expected to boost payments by 4.8 per cent next year, increasing the full new amount to £241.30 a week, or ££12,547.60 a year, just over £20 away from using up all the allowance.
Mike Ambery, retirement savings director at pension provider Standard Life, said there could be changes to the allowance in the Autumn Budget, which the Chancellor will present on Wednesday, November 26.
He said: “There is a potential of an increase to the personal allowance for pensioners in line with the state pension. Recent above-inflation increases in the state pension have raised concerns that it will soon exceed the personal allowance which has been frozen since 2021.
“Around one in eight pensioners rely solely on state provision in retirement and this group are likely to start paying income tax on state pension payments for the first time from April 2027.”
Labour has committed to keeping the triple lock in place for the duration of this Parliament. But there are concerns that the policy is becoming ever more unaffordable, providing sizeable increases including a record 10.1 per cent boost in April 2023.
Mr Ambery said: “The state pension is funded by the workers of today, and its costs are set to swell over the coming years as more of our ageing population reach state pension age.
“Any future reforms or changes to the triple lock will need to carefully balance its long-term affordability with the sizable political risks associated with changing a policy affecting millions of people. The state pension age review alongside the revived Pensions Commission presents a unique opportunity to look at the pension system as a whole, including whether the triple lock continues to serve its intended purpose effectively.”
Labour announced earlier this year there would be another review of the state pension age. The state pension age is currently 66 for both men and women, but is set to gradually move up to 67 between April 2026 and April 2028.
Legislation is also in place for the state pension age to increase from 67 to 68 between 2044 and 2046. The previous review recommended bringing forward this timetable, but this suggestion was not taken up by the then Conservative Government.
