State pensioners have been issued a two-year warning over a new tax bill that could come as a « shock to many ». The Personal Tax Free Allowance, currently set at £12,570, is the maximum amount you can earn each year without paying income tax. The full new state pension is presently £230.25 a week, or £11,973.
Payment rates are predicted to rise by 4.7 per cent next April. Lily Megson-Harvey, policy director at My Pension Expert, said: « With the full new state pension set to reach around £12,534 next year and likely to exceed the frozen personal allowance by 2027, more pensioners risk being drawn into paying income tax for the first time , reports Birmingham Live.
« This fiscal drag could come as a shock to many and would erode the perceived benefit of the triple lock. »
She added: « This would be a blow to retirees, yes, but the biggest problem at the moment is the Government’s lack of clarity on the situation. »
« It’s nearly impossible to prepare for any change and weather any financial aftershock. The Government must be transparent and provide clear guidance to help retirees plan effectively. »
Ms Megson-Harvey stated that the policy has always been costly and although Labour has pledged to maintain it for now, it risks becoming unaffordable for the Government.
She said: « Any major changes would be politically challenging and risk undermining confidence among retirees. Instead of short-term tinkering, we’d like to see a focus on long-term sustainability and fairness.
« And of course, should any changes be announced, ensuring that support is made available to retirees to help them manage their financial plans. »
She added: « The Government should explore how those who rely on the state pension can keep as much for their retirement as possible, such as exemptions from any potential income tax.
« However, decisions must be made in consultation with the industry and with protections for the most vulnerable. Quick fixes risk adding complexity and deepening inequalities. »
The Labour Government said earlier this year that the Personal Allowance will remain frozen at £12,570 until April 2028.
