Millions of people on the State Pension are set for another bumper boost under the Triple Lock.
The Triple Lock on the annual State Pension uprating will be honoured until the end of the decade, by both the Conservatives and Labour Party. The policy was introduced by the Coalition Government in 2010 to ensure that the State Pension rises in line with the greater of the September’s Consumer Price Index inflation rate, earnings growth, or 2.5 per cent.
Gary Smith, Partner in Financial Planning at Evelyn Partners, warns that a “policy showdown is on the horizon” between the Triple Lock and the personal income tax allowance freeze. 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.”
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.
State Pension and income tax The MoneyHelper website explains that State Pension income is taxable but usually paid without any tax being deducted and reminds retirees that they no longer have to pay National Insurance contributions after reaching State Pension age.The guidance states: “You only pay Income Tax once your total annual income is above your Personal Allowance.
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