A little-known DWP rule change could see thousands of pounds wiped off state pension payments in just a few months – and it’s all down to one specific trigger
State pensioners could be hit with a drastic £8,000 annual reduction in their payments due to an impending change that many are unaware of. The triple lock ensures state pension rates rise each April by the highest of 2.5%, average earnings growth, or inflation.
However, if next year’s increase is over 5%, the full new state pension will become taxable, potentially causing significant financial shifts for some individuals, as reported by Plymouth Live. Currently, individuals can earn up to £12,570 annually before paying income tax, in line with the personal allowance.
Yet, the full new state pension is £230.25 weekly, or £11,973 yearly, just under the income tax threshold by £600. Rebecca Lamb from Money Wellness commented: “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.
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“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.”, reports the Express.
Ms Lamb has expressed concerns that quite a few elderly individuals could unknowingly go over the income threshold, thus missing out on essential benefits. She remarked: “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.”
Pension Credit acts as a top-up for income, which could heighten weekly earnings to £227.10 for singles and £346.60 for partners.
You might be entitled to extra funds based on individual circumstances, like caregiving duties or severe disabilities. On average, Pension Credit can provide about an additional £3,900 per year, although this amount can vary.
Despite efforts by the Government to boost claims, it’s believed a substantial number of people are still not claiming what they’re due. Tools such as the Turn2us website’s benefits calculator are available to check if you’re eligible for Pension Credit and other financial aid.
In the event state pensions increase by 5% next year, approximately 1.6 million more senior citizens might have to pay income tax, potentially bringing the total taxpayers in this group to nearly nine million.
