Labour Party government has been told it may have to act before a HMRC tax change comes in.
State pension payments went up 4.1% this month thanks to the Department for Work and Pensions ( DWP ) triple lock but the Labour Party government has been told it may have to act before a HMRC tax change comes in.
The full state pension is worth £11,973 a year – just £600 away from going over the personal allowance, which currently allows you to earn £12,750 a year without paying income tax.
Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group, said: “With inflation forecast to rise to around 3.7% this year, and wage growth including bonuses currently sitting at 5.6%, it looks likely that earnings will determine next year’s triple lock and it’s possible that we’ll see next year’s state pension rise above the £12,570 personal allowance.
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Mr Ambery said: “There are a few options on the table – the Government could lay out a plan to lift the personal allowance freeze for everyone, which would generate consistency between workers and pensioners but come at a cost to the public purse.
“They could also consider bring in a mechanism by which the personal allowance increases for pensioners alone, similar to the previous Government’s ‘triple lock plus’ plan – this would be less costly, but risk questions of bias over workers.”
He added: “The reality is, any inflation-busting state pension increase next year is likely to raise questions both on taxation and the long-term affordability of the policy.”
Claire Trott, divisional director for Retirement & Holistic Planning at St. James’s Place , siad: “For those with other pension income the additional tax will be taken by way of PAYE, but if you have no other income or your other income isn’t taxed PAYE then there is the challenge of making sure you are paying the correct amount of tax.
“This could mean that many more pensioners will need to do self-assessment returns, which are daunting for most, let alone those who have never had to do one before and are likely to be of an age where they might be less tech savvy and less trusting of online submissions.
“This could mean the cost of having someone do a return for you may be more than the benefit of the increase. Something needs to be done to make this simpler for everyone.”
