Millions of state pensioners are being urged to act to secure up to an extra £694.43. Analysts are warning that a looming “stealth tax” could hit around 32 million people by 2027-28.
Wealth management company Quilter is advising Brits to defer accessing their state pension payments to offset the tax. The “stealth tax” will be caused by fiscal drag, which occurs when incomes rise and tax thresholds remain frozen. This would put people into higher tax brackets.
It’s estimated that 18 million Brits will be taxed for the first time while a further 12 million will start paying a higher 40% rate. Meanwhile, those who earn more than £125,140 will be put into the 45% tax threshold.
As well as avoiding backlash from raising headline tax rates, freezing thresholds has become lucrative for the Treasury. According to the Office for Budget Responsibility (OBR), fiscal drag will raise £42.9 billion by 2027-28.
Financial experts have given advice to people who face the tax squeeze. Craig Rickman, personal finance editor at interactive investor, recommends older Brits to postpone their state pension.
He explained: “You can postpone your state pension and there can be financial advantages to doing so.” This increases the amount by 1% for every nine weeks.
Rickman added: “Given the current full state amount, this could equate to an extra £694.43 in 12 months’ time.
“This approach might suit those who are still receiving a working income, which could result in a large portion of their state pension being swallowed up in tax.
“However, you do need to watch out here, as you would forfeit a year’s state pension payment, which unless you live for around a couple of decades, could mean you were better off claiming it as soon as you could.”
