Those receiving a State Pension will see their income rise by 4.1% in April alongside the personal allowance threshold freeze
State Pensioners are being warned to keep a close eye on their finances when they get a rise in income next year. Rachel Reeves ‘ autumn budget confirmed a 4.1% increase in the state pension from April, equating to roughly £475 annually for those on the new State Pension, according to Money Saving Expert.
However, recent social media warnings suggested this could actually reduce pensioner’s income by £130 a month. While not entirely accurate, pensioners are advised to be mindful of potential tax obligations as the Chancellor also announced that the personal allowance threshold for income tax will remain frozen for several years.
At present, individuals can earn up to £12,570 annually before they are liable for income tax. Any earnings above this amount will incur a 20% income tax bill at the basic rate, while earnings over £50,000 will attract a 40% income tax bill at the higher rate and annual income over £125,140 is taxed at an additional 45% rate.
Pensioners may need to familiarise themselves with these rates as the April increase means the yearly new state pension will be £12,016.75. It means pensioners can to earn just over £550 before triggering a tax liability.
However, this sum includes any other personal or workplace pensions, retirement annuities and rental income. It also takes into account certain benefits like Carer’s Allowance or Bereavement Allowance, reports Lancs Live.
Due to the combined state pension rise and personal allowance freeze, many retirees are anticipated to become liable for income tax for the first time in their retirement or be pushed into a higher tax bracket. It’s estimated that eight million pensioners already pay some tax in retirement, so this may not be entirely new.
Your pension provider usually calculates and automatically pays tax on pension funds. It’s also important to note that, in terms of income tax, only the amount above the threshold you earn is taxed at that rate, not your entire income.
