Money saving expert Martin Lewis has issued a warning to everyone with a state pension after the issue flared up in the ITV General Election debate between Rishi Sunak and Sir Keir Starmer.
Martin rushed to X (Twitter) to clarify the situation on state pensions and tax after the issue of state pension income possibly being taxed in future became a hot point in the debate ahead of the July 4 General Election.
Martin Lewis told his followers how state pensions currently worked and issued a warning to those with an income above £12,570 – including the £11,500 current state pension amount.
Martin Lewis said: “Do you pay tax on the state pension? I’ve been asked this a lot after last night’s @ITVdebate so: The state pension is, and has always been taxable income. The full state pension is currently £11,500/yr. The standard personal allowance (the amount you can earn before you pay income tax) is £12,570/yr.
“So if you ONLY get state pension income and nowt else, you won’t be taxed currently.”
Martin explained that there is DWP data which shows that 8.1M out of the 12.7M people already do pay tax on their income including their state pension income.
“At the last available DWP data of 12.7m people of state pension age in the UK, 8.1m will likely pay income tax as other income took them above the personal allowance. So roughly two thirds of state pensions do already pay tax.
“PS I’m explaining the standard situation. Those on old pensions, SERPs, who’ve deferred pensions, have extra pension allowances can be over the personal allowance now.”
The issue is that the Personal Allowance is currently set at £12,570 per year – this is the amount that you pay before you begin to owe tax on your income.
And because of the Triple Lock, pension income is increased every year – either to match inflation, wage growth, or 2.5 percent, whichever is highest.
The government has not increased the Personal Allowance thresholds for anyone for many years, which means that pensioners will start to be caught in the allowance and owe tax from as soon as next year.
Rishi Sunak has proposed a change to the Personal Allowance bands in future – but only for pensioners, dubbed ‘Triple Lock Plus’.
