It comes due to a little-understood consequence of rising pension payments under the government’s triple lock guarantee.
A pensions expert has raised the alarm over a looming financial shock for retirees, warning that many state pensioners could see their incomes effectively reduced by as much as £8,000.
It comes due to a little-understood consequence of rising pension payments under the government’s triple lock guarantee.
The triple lock system, introduced to protect pensioners’ income, ensures that the state pension increases each April in line with whichever is highest: average earnings growth, inflation, or a guaranteed minimum of 2.5%. While this mechanism has delivered consistent year-on-year growth for pensioners, it may soon bring unintended tax implications for many older people.
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Rebecca Lamb, external relations manager at 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.
“Pension Credit acts as a gateway to a wide range of help: Housing Benefit, Council Tax Reduction, free NHS dental and eye care, the Warm Home Discount, 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.”
Ms Lamb said: “What’s most worrying is that many won’t see it coming. There’s no clear warning when someone is about to lose entitlement, and pensioners who aren’t online or don’t have support with money matters may not realise until it’s too late.”
Quilter’s Ian Brown said: “A growing number of retirees are edging toward the tax threshold, and once the full state pension crosses that line, many will start losing a portion of their income to the taxman.
“For people without additional savings or private pensions, this could result in a reduction of up to £8,000 annually in real terms over time if adjustments aren’t made.”
