State pensioners warned 400,000 face tax 'for the first time'

A pension alert has been issued as 400,000 older Britons look set to be hit with retirement tax "for the first time". Pensioners face being hit with a retirement tax for the "first time" and fiscal drag is predicted to have a knock-on effect on how much people will bring home from their state pension,

New research suggests that 420,000 pensioners are in line to be slapped with a pricy retirement tax within the next couple of years. Former Liberal Democrats pensions minister Sir Steve Webb warned older households to prepare for potentially falling foul of the tax-free threshold.

He explained: "An increase of 4.5 per cent in the state pension could easily bring around 400,000 more pensioners into income tax for the first time. This is more people who may have to deal with HMRC or face end-of-year tax demands for a relatively small amount of money."

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Average pay including bonuses grew 4.5 per cent in April to June, according to the ONS, giving the best indication yet of what the state pension will rise to in 2025-26 under the triple lock. A 4.5 per cent increase on the full new state pension would see annual pay go up from £221.20 a week to £231.15 – bringing the full yearly new state pension to £12,061 a year.

However, the frozen personal allowance at £12,570 means 400,000 more pensioners could be dragged into paying income tax as a result. Sir Steve said: "The link between the level of the tax-free allowance and the level of the state pension needs to be urgently reviewed."

A HM Treasury spokesman said: "Older people should be able to live with the dignity and respect they deserve, and the State Pension is the foundation for this. We are committed to the Triple Lock, and pensioners whose sole income is the new state pension and who have not deferred or receive protected payments do not pay any income tax.”