Millions risk paying income tax in retirement after state pension rise

The full, new state pension is worth £10,600 during the 2023/24 financial year (Image: GETTY) The state pension is set to increase again after the Government confirmed honouring the triple lock . The triple lock states that the state pension should rise each year in line with either September’s Consumer Price Index (CPI) inflation rate, earnings growth, or 2.5 percent – whatever is highest. The Bank of England’s latest CPI inflation rate forecast for September is seven percent. If this happens, the full new state pension would rise from £10,600 to £11,342 from April next year. However, this could result in more pensioners paying income tax as the threshold remains at £12,570. The Bank of England’s latest CPI inflation rate forecast for September is seven percent (Image: EXPRESS) Around 8.1 million people over state pension age paying income tax in the 2023/24 financial year. This is a 25 percent increase on the 6.47 million pensioners who paid income tax in 2020/21, according to the latest annual income tax statistics from HM Revenue and Customs ( HMRC ). Gary Smith, a partner in financial planning at Evelyn Partners, warned that a ‘policy showdown is on the horizon’ between the triple lock and the personal income tax allowance freeze. He said: ‘Both Conservatives and Labour have pledged a commitment to the triple lock in their manifestos for the upcoming general election. ‘And the policy of the current UK Government is to keep the personal allowance frozen until at least 2027/28 at £12,570, with no indication of an alternative policy from Labour. Personal Allowance threshold is pushing more people into paying tax (Image: GETTY) ‘If the Bank of England’s latest forecast for September inflation of seven percent is correct, then the triple lock – assuming wage growth does not exceed seven percent – will boost the full new state pension to £11,342 in the 2024/25 tax year.’ Mr Smith explained if the state pension increased by just 3.5 percent for the next three years, the state pension would be above the frozen personal tax allowance threshold of £12,570. He continued: ‘That then presents a conundrum to the Uk Government of the time: create an administrative and political headache by taxing the state pension, possibly at source – which would be massively unpopular among the more than 13 million people then expected to be of State Pension age – or make the headache go away by raising the personal tax allowance for everyone.’ The full, new state pension is worth £10,600 during the 2023/24 financial year. Finance experts at Evelyn Partners have calculated the possible annual payments over the next four financial years. · Seven percent rise in 2024/25 – £11,342 · 3.5 percent rise in 2025/26 – £11,739 · 3.5 percent rise in 2026/27 – £12,150 · 3.5 percent rise in 2027/28 – £12,575 Mr Smith said: ‘While pension saving can still be very tax-advantageous – particularly if a saver is a higher or additional rate taxpayer in their working life but then a basic rate payer when they draw on their pension – this does serve to remind today’s savers of the value of ISAs, which can provide a valuable supplementary income to pensions during retirement which is not taxed at access. Although contributions to ISAs for most people will be from taxed income.’