Today’s announcement from the government stated it is keeping the triple lock for state pension. This means pensions will rise based on the highest of either the average of earning growth, inflation or 2.5%.

The Good News:

The new state pension will rise to around £241.05 per week or around £12,534 annually.

The Not So Good News:

The personal allowance (the income you earn before starting to pay UK income tax) is currently set at £12,570 per year and is frozen until at least 2028.

After the new state pension rise to £12,534.60, it is now very close to the allowance. If you have any other income, it could push you over the threshold and mean you begin to pay tax.

As the threshold is frozen while pensions are rising, more pensioners will be pulled into paying income tax. With inflation and/or income growth, this will cause many to move into a tax band that they had previously avoided, this is called a fiscal drag.

Some pensioners who weren’t previously taxed on their state pension may now see tax deductions depending on their income from elsewhere. The amount over the allowance is taxable at the basic rate of 20%. It’s not a full tax on pensions, only the portion that goes beyond the current threshold.

It therefore becomes increasingly important to regular discuss and re-assess your retirement planning needs, objectives and position in this ever-changing landscape.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested. Transferring out of a final salary pension is unlikely to be in the best interest of most people.