UK state pensioners with £1,274 or more in savings warned about tax implications
Millions of state pensioners are set to receive a pay rise worth more than £460 from next year
by Kathryn Riddell, James Rodger · ChronicleLiveState pensioners have been issued a stark warning about the amount of tax they could be paying on their pensions following a projected £460 increase.
The anticipated boost for millions of state pensioners comes as the "triple lock" policy promises a rise of over £460 next year.
Although the exact increase will be unveiled by Work and Pensions Minister Liz Kendall before the Budget is set on October 30, indications point to a likely four per cent hike – mirroring the average wage increase recorded by the Office for National Statistics.
This potential £460 boost in state pension payments is poised to elevate the annual sum from £11,541.90 to £12,003.68, edging it closer to the existing Personal Tax Allowance threshold by just under £566. Current regulations stipulate that the Personal Tax Allowancewhich is the yearly non-taxable income bracket, stands at £12,570.
Data released in June by LCP suggests approximately 8.51 million older Britons are set to pay income tax on their pensions during the fiscal year 2024/25, marking an increase of 660,000 from the previous count of 7.85 million. Liberal Democrats figures indicate that around 240,000 individuals may cross the personal allowance limit next year.
Sir Steve Webb, the ex-Pensions Minister from the Liberal Democrats, commented on the impending scenario: "From next year, roughly three in four UK pensioners will have to pay income tax, and just over a third of a million will be dragged into the tax net for the first time since they retired", reports Birmingham Live.
Under current tax regulations in the UK, the income tax threshold stands at £12,570, meaning no tax is payable for income up to this amount. Above this threshold, a 20% tax rate applies.
For instance, on an income of £50,270—which is the upper limit of the basic 20% tax rate bracket—one would pay tax on £37,500 of that sum. If annual earnings exceed £50,270, the tax rate escalates to 40%, and for those earning more than £125,140, the rate increases further to 45%.
In the case of pension income, if an individual receives £13,884 per annum—which is £1,274 above the state pension threshold and represents the average UK pension—they would be liable for £261 in taxes, resulting in a net income of £13,626. According to research by the Private Office, a minimum retirement standard requires an annual income of £14,400.
This would incur a tax bill of £364.20, leaving an annual take-home amount of £14,035.80. To maintain a "moderate" retirement lifestyle with an annual requirement of £31,300, the current tax rules would deduct £3,744.20 in taxes, allowing one to retain £27,555.80.
For a comfortable retirement at £43,100 annually, the tax due would be £6,104.20, resulting in a take-home figure of £36,995.80.
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