Patrick Thomson, head of research analysis and policy at Standard Life Centre for the Future of Retirement comments:
“Reports suggest the Chancellor is set to protect the lowest-income pensioners from paying tax on their State Pension. From next April, the full new State Pension is expected to rise to £13,036, taking it above the frozen £12,570 Personal Allowance. The reported change would raise the tax-free threshold for people relying solely on the State Pension, so they would not face a tax bill simply because of the increase.
“This will be a relief for those affected, avoiding both an unexpected tax bill and additional tax administration. The protection could be worth around £93 in the first year and nearly £770 over the duration of the Personal Allowance freeze, based on the minimum 2.5% State Pension guarantee. But if increases are higher, the saving could be greater.
“Much will depend on the detail of the protection and who qualifies. If it applies only to those whose sole income is the State Pension, people with even relatively modest workplace or private pension income could still be affected. What looks like a relatively simple solution could become more complicated over time as the State Pension continues to rise against a frozen Personal Allowance, widening the difference in tax treatment between those relying on the State Pension alone and those with relatively small amounts of additional retirement income.”
