Seeking comment: State pension could rise by £500 next year

At a time when the public finances are under severe strain, pushing the state pension above the personal allowance would be a political and fiscal headache of the Government’s own making. Pensioners who rely solely on the state pension should not be dragged into income tax through the back door, but endlessly lifting the triple lock while freezing tax thresholds simply shifts more of the bill onto working households already battling higher rents, mortgages and living costs. The triple lock has done an important job protecting older people, but it is becoming increasingly blunt and expensive. If ministers want to protect poorer pensioners, they should do it transparently through targeted support and sensible tax policy, not by pretending a universal ratchet can rise forever without consequences.

The combination of the triple lock and frozen personal allowances is inevitably going to drag more pensioners into paying income tax.

The problem is made more confusing because tax is not deducted directly from the State Pension. For those with a private or workplace pension, HMRC may instead collect the tax through that income, leaving them wondering why their pension has suddenly fallen.

The Government has already recognised the issue for people whose only income is the State Pension. But that risks creating a sense of unfairness: someone relying solely on the State Pension may be protected, while someone who has diligently built up even a modest private pension could face a tax bill precisely because they made their own provision.

With the Personal Allowance frozen and the State Pension continuing to rise, this problem is only going to become more widespread.

Although this is not financially viable, the State Pension should be on a par to the National Living Wage/Real Living Wage. If this is deemed to be what is required to be self sufficient for housing, food and bills, we should not be putting our pensioners at a financial deficit where they are struggling. There have been countless changes to private pensions so even when people plan ahead for their retirement, these have been meddled with. The State pension in isolation should be tax free income, any supplementary income over and above that should be taxed accordingly. Removing the triple lock would enable this to be assessed more efficiently- we shouldn't be leaving our elderly financially vulnerable where the costs of living alone are so high and they are choosing heating or eating.

The State Pension crossing the personal allowance sounds bigger than it is. On these numbers the tax comes to about £98 a year, and it lands on people getting the full new State Pension or more.

The pre 2016 basic pension is £9,615 a year, well short of the line, and the ones already over it are over because they have SERPS on top and are paying tax already.

HMRC already has the machinery. Where there is no other income to code against it issues a Simple Assessment, a PA302, and asks for the money. So this isn't a new problem arriving next April. It's an existing one about to get bigger.

The asymmetry nobody mentions is this. The frozen allowance is primary legislation, running to 5 April 2031. Of the triple lock's three limbs, only earnings is in the statute. CPI and the 2.5 per cent floor are policy. The lock isn't the thing that needs fixing. It's the allowance frozen underneath it.

Projections show that by 2035, the State Pension will cost more than is received in National Insurance contributions, dragging more people above the personal allowance, as it is designed to always match or outperform wage growth due to the triple lock.

Once the State Pension is taxed, fiscal drag truly erodes the real benefit of the triple lock because part of the increase is effectively clawed back through taxation.

After increasing by more than 30 per cent since just 2022, if the triple lock were to increase by at least 2.5 per cent each year until 2055, the State Pension would have more than doubled compared to this financial year.

The personal allowance won’t increase anytime soon, so one solution could be to introduce a specific tax exemption or additional allowance for State Pension income, similar to the Cash ISA limit, so those who rely solely on it are not pushed into income tax liability, but keep the existing rules for those with additional sources of income.