State pensioners have been warned their payments are ‘perilously close’ to becoming subject to income tax bills from HMRC. The personal allowance is currently £12,570 a year, while state pension payments will increase 4.1 per cent in April in line with the triple lock.
It means state pensioners will receive £11,975.60 a year – £595 away from the treshold. Rachel Vahey, head of public policy at AJ Bell, said: “The state pension will be at a level perilously close to the frozen personal allowance and should overtake it in a couple of years if things continue, thanks to frozen tax thresholds.”
Ms Vahey stated: “At that point something must surely give. But slowing the increase in state pension growth or unfreezing the personal allowance both seem unlikely. It could be that this fast-approaching crunch time means the Government will finally be forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year.”
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Ms sahey commented: “Criticism of the decision to scrap the Winter Fuel Payment for all pensioners except those that claim Pension Credit still lingers. Government will hope this rise in Brits’ state pensions will publicly reinforce its commitment to the triple-lock, although some will still be reeling from the £200 most pensioners lost this winter.”
The former pensions minister, Steve Webb, now a partner at the consultancy LCP, said that part of next April’s increase “is simply to keep pace with rising prices”. He added: “Based on the current inflation figure of 2.2%, the new state pension would need to rise by just over £250 simply for pensioners to stand still.
“While an above-inflation increase of £460 [a year] will be welcomed, only the further £210 represents a real increase. And this is before allowing for the income tax which most pensioners will pay on their state pension rise. Those who lose £200 or £300 in winter fuel payments will therefore still be worse off in real terms next April.”