Martin Lewis has issued an update to Britons on growing concerns that "the state pension will start to be taxed" in the next few years due to the impact of fiscal drag on the personal allowance.
Speaking on ITV's Good Morning Britain, the financial journalist addressed the consequences of frozen tax allowance thresholds with the retirement benefit at risk of crossing the £12,570 limit.
Lewis said: "I'm getting quite a few people getting in touch concerned 'the state pension will start to be taxed' on the back of newspaper articles. I thought it worth making a few simple points to clear up possible confusions."
The founder of Money Saving Expert sought to clarify misconceptions surrounding pension taxation amid mounting anxiety from the public.
Martin Lewis is giving an update following concerns over a looming state pension tax
GETTY / ITV
The host of The Martin Lewis Money Show Live emphasised that state pension payments have always been subject to taxation, contrary to public perception.
He explained: "The state pension is already taxable and always has been in my memory, in other words it counts towards your taxable income. Many state pensioners who have other income too already pay income tax."
This issue stems from the personal tax allowance threshold being frozen at £12,570 since 2021 by the Conservative government with Chancellor Rachel Reeves has indicated this freeze will continue until 2028.
Lewis explained that this creates "fiscal drag" whereby anyone earning above £12,570 begins paying income tax at that threshold.
Do you have a money story you’d like to share? Get in touch by emailing money@gbnews.uk.
Fiscal drag is dragging Britons into higher tax brackets GETTY The triple lock system ensures pensions increase annually by the highest of 2.5 per cent, CPI inflation rate, or wage inflation.
Due to this mechanism, pensioners could begin paying income tax even when their sole income derives from the state pension.
Furthermore, Martin Lewis noted that current stories focus on how "the triple lock means the current headline £11,973/yr State Pension may rise above the £12,570/yr personal allowance in a few years time. So some who's only income is the State Pension would then pay tax on the portion above the personal allowance".
However, Lewis cautioned that the £11,973 figure applies only to those receiving the full new state pension, with most pensioners on lower amounts from the old system.
As well as this, Lewis outlined potential political solutions to prevent state pensioners from facing tax liability.
He explained that politicians could "increase the personal allowance (for everyone or just for state pensioners)" as one approach to address the issue.
LATEST DEVELOPMENTS:
The Money Saving Expert broke down the impact of fiscal drag on peoples' finances
PAAlternatively, Lewis noted that ending the triple lock system would prevent state pensions from rising to taxable levels, though he emphasised: "I'm not aiming making any political point here."
Harry Fenner, a British entrepreneur and former CEO of Navana Property Group, has previously urged the Government to end the freeze on tax allowances.
Fenner said: "The state pension has long been a cornerstone of dignity in retirement - a promise from government to people that a lifetime of work will be honoured with financial security. Now, with a Labour Government a year in, we’re seeing ominous signals that this promise may soon be broken.
"Talk of scrapping the triple lock or extending the personal allowance freeze - essentially taxing pensioners more - is a betrayal in plain sight. It’s a quiet, creeping austerity targeted not at the wealthy, but at those who have already paid their dues. Under the current freeze, inflation is already eroding retirees’ real income. Now Labour seems poised to go further, potentially making state pension payments liable for income tax for millions."
Most Read
