Three crucial state pension changes will be triggered next month
Three specific changes will be affecting the state pension in a matter of days as the new tax year begins. While this time of year usually brings an increase to state pension payments, this year it will also start to change the age people are paid at and whether they’ll need to give money back to the Government.
The new tax year is due to start on April 6th and will usher in the new rate of DWP payments as well the start of the state pension age rise and an estimated 600,000 people receiving these payments will become liable for Income Tax as a result.
New state pension rate
Both the new and old state pension rates will be increasing by 4.8% thanks to the Triple Lock guarantee. This assures pensioners that their income will be raised by the highest of three figures; wage growth, inflation or 2.5%.
For this year’s calculations, the 4.8% earnings growth in the UK outpaced inflation which was at 3.8%. Other welfare benefits like Pension Credit will be increased by this 3.8% from April 6 too.
People receiving the full new state pension may get around £12,536.55 according to MoneySaving Expert. But this will leave them with less than £34 before breaching their personal allowance threshold.
Income tax
Most people have a personal allowance threshold of £12,570. This amount has been frozen for years and is expected to stay at the current level until 2031. When people earn more than their personal allowance in one tax year, they then become liable for an Income Tax bill.
Once the new state pension rates are implemented in April, people who are claiming the full sum and any additional income like a private pension or even part-time work will likely be liable for income tax.
The increasing state pension and frozen personal allowance rates are expected to collide next year but the OBR has estimated that around 600,000 pensioners will become liable for tax bills in the 2026/2027 tax year due already.
Chancellor Rachel Reeves has assured that people whose sole income is the state pension will not be liable for Income Tax even if the state pension amount overtakes the personal allowance.
State pension age
The state pension age will be rising from 66 to 67 gradually over the next two years. The phase transition will be starting in April and is expected to affect everyone born between 6 April 1960 and 5 March 1961.
The state pension age is the earliest that you can expect to be eligible for state pension payments. Most people can access their personal or workplace a few years earlier at 55 but this minimum age will also be increasing to 57 from April 2028.
Everyone affected by any changes to their State Pension age should receive a letter from the DWP well in advance. Being aware of these changes in advance will allow people to shift their retirement plan accordingly.
You can also check what your state pension age could be online through the Gov.UK website. The site also provides a state pension forecast tool as not everyone will receive the same amount when they do reach state pension age.
