Pensioners will see an 8.5 per cent increase to their state pension this week, a rise which will no doubt be welcome amid what seems like never-ending living costs.
For those on the full new state pension, it equates to almost £900 more each year, while people getting the full basic state pension will see an annual rise of around £700.
Don’t assume that’s how much better off you’ll be in real terms, though.
The Government’s ongoing six-year freeze to tax thresholds means millions more pensioners and low-income households will be dragged into the 20 per cent basic rate of tax over the coming years as they edge towards, and breach, the £12,570 tax-free threshold.
A typical basic rate tax-paying pensioner will face a £530 a year tax hit due to frozen tax thresholds, according to analysis by the Liberal Democrats, meaning 77 per cent of the rise is swallowed up in stealth taxes.
Some 1.6 million pensioners will be dragged into paying income tax by 2027/28 due to the frozen tax thresholds.
Around 1.2 million of that increase is expected to occur in the coming 2024/25 tax year.
A number of retirees with a “small” pension income have told GB News they have already been affected.
Among them is Susan Bruce, who was “really pleased” about the state pension rise, until a tax code letter from HMRC arrived.
The triple lock was introduced by the coalition government in 2011 to increase the state pension to a “liveable” level.
It’s certainly helped boost state pension rates, but the state pension still falls short of the amount needed for a “minimum” standard of living in retirement.
This costs around £13,000, according to the PLSA’s latest retirement living standards.
The triple lock was never meant to be “forever”, former pensions minister Sir Steve Webb reminded us this week.
“There is a kind of correction going on at the moment,” he told BBC. “The triple lock isn't forever. It's doing a job of trying to restore the state pension which, by international standards, is still very low.”
The Government seems to think the state pension is not yet at the level it wants it to be at. They increased it by a significant 8.5 per cent this month, after all.
So why let hundreds of thousands of pensioners be dragged into paying tax?
It’s just giving with one hand and taking most of it back with the other.
I think it defeats the entire point of the state pension triple lock policy.
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The UK state pension has increased by 8.5 per cent from this month but more and more pensioners are set to be taxed
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And for pensioners without enough other PAYE income, the stealth tax is going to cause a big headache as they’ll likely have to repay tax after the tax year ends via “simple assessment”.
I think the personal allowance needs to be uprated now, to give pensioners and low income households a helping hand following a surge in living costs.
A Treasury spokesperson has pointed out pensioners don't - currently - pay any income tax if their sole income is from the full new state pension, and added: “We are standing by our commitment to maintain the triple lock by raising the basic state pension from Monday to almost £170 a week, after the largest ever cash increase last year.
“As the Resolution Foundation has said, the introduction of the triple lock and new state pension means pensioners are on average £1,000 better off than if the state pension had just risen with earnings.”
But if the point of the triple lock is to improve the state pension to make it "liveable", I think protecting the payment from the impact of fiscal drag during this process is crucial.