Seven million will not benefit from an increase in state pensions.

Pensioners Facing Changes in State Benefits

Approximately 7 million pensioners may miss out on potential increases to their state pensions starting in April. This situation arises because some are receiving additional revenue-related pensions, known as SERPs or state second pensions, which don’t fall under the government’s triple-lock system.

The triple-lock, implemented in 2011, guarantees that state pensions rise each year by the greater of average wage growth, inflation, or 2.5%. With wages on the rise, we could see a boost of about £599 (5%) from £11,973 to £12,572 annually come April. However, the second pension adjusts only with inflation, which is currently at 3.8%. Meanwhile, those with basic state pensions from the older system will still see increases according to the triple-lock.

Impact of Taxes on Pensioners

This discrepancy highlights an ongoing issue: the increase in new state pensions is nearing the income tax threshold, set at £12,570 until 2028. As a result, many pensioners might find themselves paying taxes for the first time, especially as the April increase pushes their pensions just above that limit.

Adam Cole from Quilter noted that this trend stems directly from the frozen tax threshold. He described it as a classic example of fiscal pressure. “The triple-lock guarantees pension increases to match inflation, but with tax levels not rising, more retirees, including those with only modest incomes, are being pulled into taxable income,” he explained.

Helen Morrissey from Hargreaves Lansdown emphasized that these frozen taxes are likely to bring more pensioners into taxable brackets. Cole added that this situation could lead to confusion and frustration, especially for retirees who don’t have high incomes and could be facing unexpected tax bills.

Lisa Picardo from Pensionbee expressed concern over the potential erosion of confidence in the retirement system. “The freeze on allowances shows a fundamental inconsistency,” she said. “While the triple-lock raises pensions, the frozen tax threshold effectively diminishes that benefit.” She warned that if left unchecked, millions of pensioners might end up paying taxes on what they thought was a basic entitlement.

The budget implications are significant, with the annual state pension costs projected to hit £125 billion for 2023-24. Webb called for a fresh look at how tax thresholds are determined. He argued that freezing allowances is simply a way to quietly impose a burden on people, stating, “If state pensions are considered the minimum necessary for living, taxing them seems counterintuitive.”