A 4.1% increase in the state pension means that pensions are 'perilously close' to the frozen personal allowance for income tax, meaning the government may be forced to look at reviewing the amount and age at which Brits can access it, an expert has warned. In April the state pension increased by 4.1% to £11,973 a year, £597 short of the £12,570 personal allowance threshold at which Brits start paying basic rate tax on their income.
The state pension is, of course, already subject to income tax - for example if you have a private pension, other sources of income like rented property or savings interest on top of your state pension. But the pension is now just a few hundred pounds away from being subject to some tax for any state pensioner, even if they have no other income.
Tom Selby, director of public policy at AJ Bell said the Office for Budget Responsibility (OBR) had projected a £182 billion rise in pensioner spending by the fiscal year 2029-30.
Selby said the recent Spring Statement the OBR had admitted having limited flexibility within current government economic plans and that it would have to explore alternatives.
Selby said the Chancellor Rachel Reeves may have a difficult choice to make.
He added: "The government is walking a precarious financial tightrope to balance its fiscal rules. With little to no wriggle room built into current plans, it may still be forced to look elsewhere for further savings. And one area that could come under scrutiny is the state pension.
“The biggest proportion of welfare spending is on pensioners. In the OBR’s recent economic and fiscal outlook, this is set to rise by 20% to £182 billion by 2029-30, mainly driven by an ageing population and the triple-lock guarantee. If the government is looking to cut costs, then pensioner spending could be something that moves into the Treasury’s crosshairs in the next few years.
“In practice, it’s not that simple. The Labour Party has pledged to protect the triple-lock guarantee, ensuring state pension increases match earnings or inflation if above 2.5%. But with the state pension rising by 4.1% this month, it’s now at a level perilously close to the personal allowance of £12,570 and should overtake it in a couple of years if things continue, thanks to frozen tax thresholds. At that point the government will have a huge decision to make.
“The crunch time is fast approaching when the government will finally be forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year."
Your state pension age is the earliest age you can start receiving your State Pension. It may be different to the age you can get a workplace or personal pension, some workplace pension schemes will let you withdraw your pension money at the age of 55, although that is set to rise from 6 April 2028.
In April 2016, the state pension changed. There are now two types of state pension, the old or basic state pension and the new state pension.
If you are a woman born before 6 April 1953 or a man born before 6 April 1951 you will be on the old state pension while women born after 6 April 1953 and men born after 6 April 2051 will get the new state pension.
The full new State Pension is £230.25 per week. You need at least 35 years of NI contributions or credits to get the full amount and you need to have made NI contributions for at least 10 years to get the old or the new state pension.
The old state pension also allowed a spouse to claim extra based on your spouse or civil partner’s NI contributions and there was an additional State Pension which allowed Brits to top up their pension under the old system.
Some people who contracted out of the additional state pension will get less because their NI contributions were paid into their privat pension
The full old state pnsion works out at £176.45 per week if you had 30 years of NI contributions or credits to get the full amount.
You should receive a letter from the Pension Service four monthe before you reach state pension age. If not you should contact the pension service.
You can make a claim up to 4 months in advance, which is often a good idea as it can a while to process. You can do it at www.gov.uk/get-state-pension to claim online.
