12.5 million British households will have £180.40 taken from their accounts next year. This comes as a result of the triple lock on pensions and how this increased ‘income’ will be taxed.
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The state pension is set to rise by 8.5% in April 2024 under the triple lock, but pensioners won’t end up being able to keep all that money. This is because their pension boost will see their tax bill increase. According to Birmingham Live, this means pensioners will pay at least £180.40, meaning the 8.5% increase becomes less significant. Let’s get into how this works.
The state pension triple lock
The full basic state pension rises each year in line with the highest of three factors:either inflation, the average increase in wages, or 2.5%. This system is known as the triple lock.
The Times explained:
Due to soaring inflation, the state pension increased more than 10% this April, costing the Treasury £124bn. Prime Minister Rishi Sunak has promised that the commitment will stay, despite wages growing by 8.5% in July. The rise in state pension will also see millions more retirees paying more in income tax.
This is where the problem comes in: pensioners are being warned that they could be pushed into paying income tax.
Pensioners paying income tax
Samuel Glee of Manning Gee Investments explained:
With the state pension hike comes an unexpected challenge – the potential shift of many retirees into the realm of income taxpayers.
This shift is driven by the increase in taxable income due to the pension boost, which pushes them across the income tax threshold for the first time since retirement, or further increases their tax liability as a percentage of their income.
The number of people receiving State Pension rose by 1.1% to 12.5 million in 2022, so this change will impact a significant number of Brits.
Does this make sense? Well, the head of retirement policy at Quilter, Jon Greer, doesn’t think so:
At some point whichever party is in government needs to face up to the fact that we need to look at the policy and replace it with something that can help ensure future generations can have access to a state pension that is of a meaningful value and is sustainable and fair.
Birmingham Live: 12.5 million households in UK will have £180.40 taken from accounts next year
The Times: What is the state pension triple lock?