State pension payments alone are more or less guaranteed to be liable for income tax for the first time, analysts warn.
Recipients of the full new state pension are on course to be dragged into the levy’s net, as official earnings figures point towards a triple lock increase of close to £500 annually from next April.
Office for National Statistics (ONS) data released this week showed total wage growth, bonuses included, running at 3.9 per cent. in the three months to July.
If this figure is confirmed to be 2027’s triple lock rate increase, the annual full, new state pension would be pushed to £13,036.
Labour is being asked to introduce ‘tax amnesty’ for vulnerable pensioners
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That sum would exceed the personal tax allowance, which has remained frozen at £12,570 since 2021, meaning millions of pensioners could face an unexpected tax liability for the first time.
The triple lock guarantee ensures the state pension rises each April by the highest of three measures: total earnings growth from May to July, consumer price index (CPI) inflation the previous September, or a flat 2.5 per cent.
Notably, the 3.9 per cent wage growth figure recorded by the ONS was down slightly from 4.2 per cent in the quarter to June, though these numbers remain subject to revision.
It should be noted that the final element of the calculation will only become clear when September’s inflation data is published next month.
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CPI currently sits at 2.9 per cent but Wednesday’s figures are anticipated to show a jump to 3.2 per cent for August, driven by surging fuel costs linked to the Iran war.
Should the 3.9 per cent earnings growth figure hold, experts calculate it would translate into an extra £9.40 per week, bringing the weekly state pension to £250.70, or £13,036 over the course of a year.
The Labour Government has indicated that pensioners relying solely on the new state pension, with no private pension income or old basic pension “with no increments”, would be shielded from paying tax.
However, ministers have yet to explain the mechanics of how such protection would actually operate in practice.
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Sir Steve Webb, the former Liberal Democrat pensions minister who now serves as a partner at consultancy firm Lane Clark & Peacock, has described the Government’s proposed “tax amnesty” for pensioners as woefully insufficient, warning it would shield just one in 16 retirees.
The former pensions minister shared: “Those on the new state pension can expect to see an increase of nearly £500 per year next April.
“But the sting in the tail is that this will take the standard rate of the new state pension above the tax threshold.”
He added that the Government’s plans “are a mess, and likely to benefit only a small fraction of pensioners”, warning they would “create unfairness between different groups of pensioners and between pensioners and low-paid workers, who do not qualify for any exemption”.
In a comment to GB News, Pensions Minister Torsten Bell said: “In line with the commitment made at Budget 2025, pensioners who only just the exceed the personal allowance will not have the administrative burden of paying small amounts of tax in this Parliament.
“The Chancellor will set out further details on how that commitment will be delivered at the Budget.”