State pension tax-free allowance under scrutiny as DWP responds to query

Labour had shed light on its policy regarding the personal tax allowance for state pensioners. The update came in response to a question in Parliament from Conservative MP, Sir Ashley Fox.

He asked the DWP about potentially aligning the allowance to the rising state pension rates. Offering a response, pensions minister Torsten Bell said: "Currently the personal allowance, which is the amount an individual can earn before paying tax, is higher than the full rates of both the basic and new state pensions.

"This means pensioners whose income is solely the full new state pension or basic state pension will not pay any income tax." The personal allowance stands at £12,570 a year meaning you can earn up to this limit with no income tax to pay.

After the 4.1% hike in state pension payments this month, the full new state pension is now £230.25 a week, or £11,973 per annum - only £600 under the taxable threshold. The full basic state pension pays £176.45 per week, or £9,175.40 yearly, under the limit by some £3,400.

Mr Bell mentioned some tax changes coming up: "The previous Government made the decision to freeze the income tax Personal Allowance at its current level of £12,570 until April 2028. At our first Budget, we decided not to extend the freeze on personal tax thresholds.

The pensions minister also shared figures that show over 80% of pensioners were subject to income tax in the tax year 2022/2023. He also said in his reply: "This Government is absolutely committed to supporting pensioners and giving them the dignity and security they deserve in retirement.

"Over 12 million pensioners will benefit from our commitment to protect the triple lock which is set to increase spending on the state pension by around £31billion and will increase people's yearly state pensions by up to £1,900 this Parliament."

Thanks to the triple lock mechanism, state pension payments go up each April based on whichever of these three factors is higher - 2.5%, the rise in average earnings, or inflation. This month, there was a 4.1% hike based on the average earnings figure.

As the state pension bill keeps on increasing, some financial pundits are warning that the triple lock metric may soon have to change, switching to a less generous system. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: "The state pension was spared the benefits overhaul announced in the recent Spring Statement, but rumours continue to swirl around whether the triple lock will remain, and such uncertainty can undermine people's confidence in the system.

"Putting the state pension on a firm long-term footing is vital to build this confidence and should be considered as the Government assesses adequacy issues during the second part of its Pension Review. Understanding what adequacy is, how it is to be achieved and the state pensions role as part of that will reduce speculation and help people to plan without fear."