Millions of pensioners will see their State Pension rise by 4.8% from April – but this welcome boost comes with a catch that could leave many facing an unexpected tax bill for the first time.
The increase, worked out using the government's 'triple lock' promise, means the State Pension will rise by whichever is highest: inflation, average earnings growth, or 2.5%. This year, it's September's inflation figure of 4.8% that sets the rate, providing much-needed help with household bills for retired families still feeling the pinch from the cost of living crisis.
However, money expert Martin Lewis has flagged a serious concern for next year. Because the government has frozen income tax thresholds until 2028, whilst pensions keep rising, the full State Pension is on track to exceed the personal allowance from April 2025. This means even pensioners who only receive the State Pension – and no other income – could find themselves paying income tax for the first time.
If you're already receiving other income alongside your State Pension – perhaps from a workplace pension, part-time work, or savings interest – you're particularly likely to be dragged into paying tax, or paying more tax than before. It's worth checking where you stand now, so you can plan ahead and avoid any nasty surprises.
The situation highlights how frozen tax thresholds can quietly chip away at the benefits of pension increases. Whilst the immediate 4.8% rise will help with today's bills, the longer-term tax implications could eat into these gains. For households already stretched by years of high inflation, this adds another layer of complexity to managing finances in retirement.
If you're concerned about how these changes might affect you, it's worth speaking to a qualified financial adviser who can look at your specific situation. They can help you understand your total income picture and explore any planning options that might be available to you.