Analysts are sounding the alarm that a tax on the state pension would have "significant financial implications" for Britons, while warning payments are "unsustainable long-term".
Millions of state pensioners face paying income tax for the first time as early as next year, even if they have no other income source. The full state pension, currently worth up to £11,973 annually, is set to exceed the frozen personal allowance threshold of £12,570.
This arises from the triple lock mechanism, which increases pensions by inflation, wage growth or 2.5 per cent - whichever is highest. With average earnings growing at 5.2 per cent, the state pension will breach the tax threshold for the first time in its century-long history.
Pensioners relying entirely on the state pension will pay 20 per cent tax on any amount above the personal allowance, with those who retired after 2016 with full contributions facing the greatest impact.
Older Britons are worried about being taxed on their state pension
GETTYDerence Lee, the chief finance officer at Shepherds Friendly, noted that pension increases since 2020 have reached levels "that some experts believe to be unsustainable in the long term", warning of significant financial implications for retirees who depend heavily on state pensions for essential living costs.
Lee advised that "taxing pensioners could have significant financial implications, particularly for those who rely heavily on their pensions to cover essential living costs and make ends meet."
He highlighted Pension Credit as potential support from the Department for Work and Pensions (DWP), noting single pensioners can receive weekly top-ups to £218.15, or £332.95 for couples.
For those approaching retirement, Lee recommended building income through tax-free ISAs, investment growth and workplace pension schemes.
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Britons are concerned about the rising tax burdenGETTY"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," he said.
Recently, former pensions minister Baroness Altmann warned of a "serious potential administrative nightmare" as elderly people who have never completed tax returns struggle with the system.
"Many elderly people have never done a tax return or paid tax themselves. They will not know what to do and may struggle to get through to the helplines, which could be overwhelmed," she said.
The administrative burden extends to HM Revenue & Customs (HMRC), which faces processing millions of new tax returns from pensioners unfamiliar with the system. Nearly nine million pensioners will pay tax on retirement income this year, compared with just 1.85 million a decade ago.
The Institute for Fiscal Studies (IFS) suggests this extension could generate up to £10 billion annually by 2030.
Despite Labour's manifesto commitment to maintain the triple lock this parliamentary term, pensions minister Torsten Bell previously advocated for its replacement during his tenure at the Resolution Foundation think-tank.
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Older Britons are worried about the future of the state pension triple lock PAThe Adam Smith Institute has warned that the state pension could become financially unsustainable as early as 2036, with Treasury spending on welfare exceeding National Insurance tax receipts.
Notably, the state pension represents the largest portion of Britain's welfare bill and is funded from current tax revenues rather than dedicated savings accumulated during working years.
This looming crisis has prompted calls to suspend the triple lock to protect Britain's finances. The IFS has also urged ministers to abandon the guarantee, highlighting the system's vulnerability.
Additional private pension contributions remain an option for those still working part-time or earning self-employed income.
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