Autumn Statement: Hunt on pension triple lock
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More than 12 million Britons who are paid the state pension will get a record 10.1 percent increase in their income next year. From April, the new state pension will rise to around £10,600 a year, and the older basic state pension for those who qualified before 2016 will increase to around £8,122. However, with the Chancellor’s other announcement of the freeze on the personal tax allowance, state pensioners could be a risk of starting to pay income tax for the first time in the next few years due to the Triple Lock promise.
With the Triple Lock promise, the new state pension will likely rise around 30 percent over the next six years.
The new state pension currently sits at £9,628 a year.
According to an analysis by the insurance company, Canada Life of Office for Budget Responsibility (OBR) figures, the state pension will likely rise to £12,544 a year by 2028.
This is only £26 below the threshold for paying the basic rate of income tax.
Mr Hunt announced on Thursday that the tax-free personal allowance will be frozen at £12,570 until 2028.
If the state pension eventually exceeds the personal allowance, the 20 percent basic rate of income tax will be due on earnings above the threshold.
Canada Life warned that “millions of pensioners” could be dragged into now paying income tax for the first time on their pensions.
Andrew Tully, technical director of Canada Life, said: “The frozen personal allowance, and income tax thresholds, are a stealth tax which will potentially drag millions more pensioners into paying income tax for the first time or paying higher rate tax when they were previously basic rate taxpayers.”
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Mr Tully warned that many retirees may also be required to complete a self-assessment return for the first time.
This would create further frustrations and administrative headache for both pensioners and HM Revenue & Customs (HMRC).
Analysis from pension investment firm LCP earlier this year revealed that half a million retirees will likely pay income tax as a result of next year’s triple lock boost and the extended freeze to the personal allowance.
At the time, Sir Steve Webb, a former pensions minister and partner at LCP, broke down the “profound effect” the income tax freeze has on those of state pension age.
Mr Webb explained: “Freezing tax thresholds is a stealthy way of raising tax at the best of times, but at a time of soaring inflation, freezing thresholds has a profound effect.
“During this Parliament, we have already seen over a million extra pensioners dragged into the tax net, and next April’s increase is likely to add at least half a million more.
“If the Chancellor is looking for ways to cut taxes and ease the cost of living pressures on those on modest incomes, he could do worse than review the long-term freeze of income tax allowances”.
Speaking in the Telegraph, Mr Webb added: “While it is fair enough for better-off pensioners to pay their fair share of tax, it seems hard to justify a system where someone who has no income beyond a state pension and is potentially entitled to help with rent or council tax because they are on a low income should find themselves in the tax net.”
The Chancellor also announced on Thursday that a review of the state pension age would be published earlier than expected next year.
This has prompted fears that the state pension age could be increased to save the Treasury more money.
The decision to raise state pensions by inflation figures rather than earnings will cost the Treasury an additional £5billion next spring.
The review, which was announced in December last year, will look at whether the rules around the pension age are appropriate, based on the latest life expectancy data and other evidence.
The state pension age is currently 66 and two further increases are already set out in legislation.
This includes a gradual rise to 67 for those born on or after April 1960; and a gradual rise to 68 between 2044 and 2046 for those born on or after April 1977.
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