Millions of pensioners in the UK could find themselves paying income tax in the near future as the state pension rises under the government’s triple-lock system. With wages growing at 4.7%, the full state pension will rise to £12,535 in April 2024, just £35 short of the current tax threshold of £12,570.
This incremental increase, while beneficial to pensioners, has raised concerns among campaigners and experts that many could soon be dragged into paying income tax despite relying solely on the state pension. According to reports, the Government has made no commitment to raising tax thresholds, which could leave pensioners with less financial freedom than expected.
State Pension Growth: A Double-Edged Sword for Pensioners
Each year, the state pension rises in line with inflation, earnings growth, or a fixed 2.5%, whichever is highest. This year, the increase will be 4.7%, pushing the state pension for those eligible for the full amount to £12,535 annually. While this rise benefits pensioners who rely entirely on the state pension, it places many of them dangerously close to the income tax threshold.
Currently, the personal allowance for income tax in the UK is set at £12,570. This means pensioners receiving the full state pension will soon find themselves just £35 under the threshold, according to government estimates. Though it might seem like a small amount, this increase in the state pension could cause a significant financial burden on pensioners who were not expecting to pay taxes on such modest income.
Critics argue that this could lead to a ‘stealth tax’ on pensioners. Campaigners, including former Pensions Minister Sir Steve Webb, have labelled it a “creeping injustice,” highlighting that many pensioners will be required to fill out a self-assessment for the first time. Rachel Vahey of AJ Bell echoed these concerns, warning that many older people might face unnecessary administrative burdens during a period of rising living costs.
The Government’s Position and Growing Public Outcry
In response to these concerns, a Government spokesperson stressed that the state pension rise would help millions of pensioners, with some seeing an increase of up to £1,900 by the end of the Parliament. However, they also stated that those completely reliant on the state pension would not have to pay tax “this year.”
Despite this assurance, critics remain unconvinced. Without an exemption for pensioners solely dependent on the state pension or a raise in the income tax threshold, many will be left paying tax when they were never expected to do so. As HMRC is likely to directly deduct tax from pension payments or issue self-assessment bills, many pensioners will have to navigate new financial complexities in an already challenging economic climate.
