Treasury minister statement over tax allowance for state pensioners | Personal Finance | Finance
The government has published an explanation of how tax relief rules affect state pensions. The update followed a question from Liberal Democrat MP Freddie van Mierlo, who asked whether the Government was looking at the issue of frozen personal allowances and how this would affect state pensioners.
You can currently have an income of up to £12,570 and pay no income tax towards the personal allowance. The personal allowance will remain at this level until April 2028.
However, the new state pension is already close to exhausting the entire allowance, paying out £230.25 a week or £11,973 a year. State pension rates are expected to rise by 4.8 per cent next April thanks to the triple lock, taking the entire new state pension to £241.30 a week or £12,547.60 a year; That’s just over £30 away from using up the full tax-free allowance.
Responding to Mr van Mierlo, Treasury Secretary Dan Tomlinson said: “The Government is committed to ensuring older people can live with the dignity and respect they deserve in retirement. The state pension is the foundation of the support available to them.”
“Over the course of this Parliament, the annual amount of the new state pension is currently projected to increase by around £1,900, according to the latest forecast from the Office for Budget Responsibility.”
Turning to the personal allowance issue, Mr Tomlinson said: “The personal allowance, which is the amount an individual can earn before paying tax, will continue to exceed the basic and full new state pension in 2025/26. This means pensioners whose only income is the full new state pension or the basic state pension without any increases will not pay any income tax.”
The full basic state pension currently pays £176.45 per week or £9,175.40 per year. However, many people receiving the old basic state pension receive additional amounts on top of their basic pay.
State pension payments are increased every April in line with the triple lock policy. This allows payments to increase according to whichever is highest: inflation, average earnings growth, or 2.5 percent.
