State Pension ‘to hit £13,230 by 2029’ with rate of hikes to slow
The spending watchdog believes retirees will see their pay increase at less than half the pace seen in the previous five years.
Retirees will likely see their pay rise by 15% over the next five years, according to official forecasts.
The Office for Budget Responsibility (OBR) expects the State Pension to reach £254.42 a week by 2029.
That would see someone on the full State Pension receiving £13,230 a year (as first reported by This is Money).
While that might sound like good news, it’s worth noting this is less than half the increase seen over the last five years (31%).
In fact, pension pay has risen more in the last two years alone (19%).
Learn more about how State Pension increases are calculated
Tax bills coming?
Not only will retirees have to cope with more moderate increases to their pay, but many will also face tax bills for the first time.
As things stand, the point at which you start paying Income Tax is frozen at £12,570 until 2029.
Assuming the OBR forecast is correct, the State Pension will pay more than £13,000 by this date.
That means even those on the full State Pension with no other income will have exceeded this threshold and face a tax bill unless the Government pledges to make the pension exempt from Income Tax.
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Many months ago I wrote to my MP and asked him to pass my concern to the Treasury. I was aware of the growing number of pensioners already being caught in the tax net. This can affect a pensioner in receipt of the full state pension who gifts 10% of their tax allowance to their spouse. The spouse giving the 10% then has an allowance of just £11,313. The current, full state pension is £11,502 There's a tax liability on the £189 and at 20% that is £37.88. My worry was how HMRC would communicate this requirement to a pension who may never have had dealings directly with HMRC and who may have moved home recently. HMRC would send the simple assessment calculation in the post and ask the pensioner to pay that £37.88. But if the address is out of date that request would never reach the pensioner. After several attempts to communicate, all failing, that pensioner would start to incur fines and possibly arrest - if located. A simple solution would have been a modest increase in the lower threshold. This would also have ensured low paid workers were not taxed proportionally more than middle and high income workers. It is worth considering that the current Labour government have polished a poor tax grab that the Conservatives put in place, ensuring the lowest paid workers take a greater share of the tax increase pain. Is that what people voted for?
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06 November 2024