DWP issues warning about tax-free limit as state pension rises
The state pension increased by 4.1% this month, with the new full rate now standing at £230.25 a week. This means it's only £600 away from the income tax threshold
As the state pension moves closer to the personal allowance tax threshold, lawmakers in Parliament are raising queries about a possible tax break. Conservative MP Sir Ashley Fox recently put government officials on the spot, pressing them for an answer on whether they plan to sync up the personal allowance with the rising state pension.
At present, people can earn up to £12,570 annually without incurring income tax. Meanwhile, with this month's 4.1 per cent increase in payments, the full new state pension stands at £230.25 weekly, equating to £11,973 each year, edging closer to that taxable figure by only £600.
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Treasury minister James Murray responded to the query, explaining: "The Personal Allowance - the amount an individual can earn before paying tax - will continue to exceed the basic and full new state pension this tax year. This means pensioners whose sole income is the full new state pension or basic state pension without any increments will not pay any income tax."
However, he pointed out an upcoming policy change, noting: "The previous Government made the decision to freeze the income tax Personal Allowance at its current level of £12,570 until April 2028.
"This Government is committed to keeping people's taxes as low as possible while ensuring fiscal responsibility and so, at our first Budget, we decided not to extend the freeze on personal tax thresholds."
During their General Election campaign last year, the Tories proposed an enhanced 'triple lock plus' policy aimed at pensioners' pockets.
The "triple lock" refers to the formula that ensures state pensions swell annually by either 2.5%, inflation or average earnings growth – whichever is the mightiest, reports Lancs Live.
But under Conservative plans, this would extend to upping the personal allowance yearly so the state pension never tips over into taxable territory.
However, experts suggest that bringing taxes into the equation with the state pension could put some retirees in a tight spot, especially those banking on extra benefits.
Rebecca Lamb from Money Wellness warned: "Many people understandably assume that a small rise in their pension is a good thing.
"But if it pushes them just over the personal tax allowance, it won't just mean paying a bit of income tax - it could disqualify them from Pension Credit, which in turn opens the door to a much larger loss."
She paints a dire scenario for some pensioners, as she explains: "Pension Credit serves as a key to numerous forms of assistance: Housing Benefit, Council Tax Reduction, free NHS dental and eye care, the Warm Home Discount, weather -payments-2019-what-13874235> Cold Weather Payments, and even the free TV licence for over-75s.
"In total, someone could end up losing more than £8,000 a year in support, all because their pension creeps just above the threshold."
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