Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group said: “This April the full new state pension will rise to £11,973 per year, 95% of the personal allowance – a welcome boost for pensioners who rely on the state pension for all or a large portion of their income, but one with significant tax implications. Wage rises might well fall below current levels by the months between May and July that could determine next year’s triple lock, but in the current setup state pensioners are likely to pay income tax on the state pension alone from the 2026/27 tax year.
“While major decisions could be held until a broader ‘fiscal event’ in the Autumn, all immediate eyes now turn to the Spring Statement, with the Chancellor facing difficult decisions on setting out a plan within the Government’s fiscal rules. Wide movement on raising tax bands seems unlikely but a decision on how to approach the state pension’s relationship with the personal allowance will surely need to be made before 2028, the year in which the tax allowance and brand freeze is set to be lifted.
“There are a few options on the table – the Chancellor 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 fiscal cost. She could also consider bring in a mechanism by which the personal allowance increases for pensioners alone, similar to the Conservative government’s ‘triple lock plus’ plan – less costly, but risking a charge of generational bias. Or, she could reassess the triple lock itself – unlikely given recent commitments to the policy including recently from the Pensions Minister himself. 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.”
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