Triple lock warning as pensioners urged to think about tax | Personal Finance | Finance

State pensioners have been warned they should prepare for a looming change as the triple lock continues to drive up payments. Payment rates go up each April in line with the triple lock, which guarantees payments increase in line with the highest of either 2.5 per cent, the rate of inflation, or the rise in average earnings.

The question of how much next year’s increase will be has been put in the spotlight as the latest inflation figures show the figure at 3.8 per cent for the year to July. However, as payments continue to go up, the full new state pension will soon become subject to a tax bill. You can earn up to £12,570 a year without paying tax – but the full new amount is already £230.25 a week, or £11,973 a year, just £600 away from attracting a HMRC bill.

Experts at savings provider Shepherds Friendly said: “Due to the extremely high levels of inflation the UK has experienced since 2020, state pensions have been increasing at a rate that some experts believe to be unsustainable in the long term. With pensions expected to surpass the frozen tax-free allowance limit next year, which will remain unchanged by the Government until 2028, more retirees will be pushed into the tax-paying bracket.

“As a result, pensioners should begin to take into account that they may soon need to pay income tax on their pensions should no changes be made to current status-quo.” The group encouraged pensioners on a low income to see if they can claim Government support, such as the much-underclaimed Pension Credit.

This DWP benefit provides a top-up to your weekly income, increasing it to £218.15 for single claimants and up to £332.95 for couples. You can get extra amounts on top of this depending on your situation, such as if you care for another adult or you have a severe disability.

As the rising cost of the state pension means the Government may soon make the system less generous, the savings experts encouraged working age people to build up their retirement savings. The group said: “Those still working part-time or receiving self-employed income might consider making additional contributions to a private pension to help with costs once they retire from work completely.

“For those looking to retire in the near future, they should consider how their income can be built up by saving into a tax-free ISA, growing their savings through investments where possible, and utilising workplace pension schemes to secure their future income during retirement. Due to the increasingly aging population and the context of economic uncertainty, it can be hard to predict what the future of the triple lock will look like, so it’s always best to have a financial back up plan in place where possible.”