Millions of UK pensioners are expected to see their state pension increase by 3.9% next April, but this rise could inadvertently push some into paying income tax for the first time. The increase is a result of the government's triple lock policy, which ensures the state pension rises annually by the highest of inflation, average earnings growth, or 2.5%.
Recent figures indicate average earnings growth of 3.9%. If this figure is used for the pension increase, and inflation remains at its current 2.9%, the full new state pension could rise from £12,547.60 to over £13,000. This amount exceeds the £12,570 threshold at which individuals begin to pay income tax.
The situation is exacerbated by frozen income tax thresholds. This means that as incomes rise, even with inflation or pension increases, individuals are more likely to be pulled into higher tax brackets. While the government has previously indicated a commitment to exempt pensioners whose sole income is the full new or basic state pension from paying tax, further details on how this will be implemented have not yet been released.
The triple lock mechanism was first introduced by the Conservative government under David Cameron in the 2011/12 financial year.