Martin Lewis gives personal tax allowance £12,570 state pension freeze update

Martin Lewis has spoken out amid concerns that people could face tax hits to their state pension next year. The personal finance expert said a number of people had been in touch worried at the prospect of losing some of their pensions in more tax.

The issue, he explained, arises because of the personal tax allowance threshold, which was frozen in 2021 by the Tories at 12,570. Chancellor Rachel Reeves has previously said the freeze will continue until 2028 - however given the country is facing a debt crisis some commentators have suggested it may be extended further.

Mr Lewis explained the 'fiscal drag' called by the freeze means anyone earning more than £12,570 starts paying income tax at that point. The triple lock which means that pensions rise every year by the highest of 2.5%, the CPI inflation rate, or wage inflation - so next year people could start paying income tax even if their only income is the state pension.

He said: "I'm getting quite a few people getting in touch concerned "The State Pension will start to be taxed" on the back of newspaper articles. I thought it worth making a few simple points to clear up possible confusions."

Martin Lewis said he wanted to make the following points:

1. The State Pension is already taxable and always has been in my memory, in other words it counts towards your taxable income. Many State Pensioners who have other income too already pay income tax.

2. The stories are based on the fact the annual personal allowance - the amount you can earn before any tax is taken - is frozen at £12,570 (this is effectively a way of stealthily raising the tax people pay each year)

3. The State Pension annual rise is currently based on a 'triple lock' (ie it rises with the highest of avg earnings, inflation or 2.5%).d quite a lot of questions."

4. The stories are about the fact the triple lock means the current headline £11,973/yr State Pension may rise above the £12,570/yr personal allowance in a few years time. So some who's only income is the State Pension would then pay tax on the portion above the personal allowance.

5. The £11,973/yr quoted is somewhat misleading. It's the amount someone on the... FULL, NEW State Pension would get. Yet most pensioners (all who hit State Pension age before April 2016) are on the OLD pensione, which has a lower basic amount. And many don't get the full pension as they don't have enough National Insurance years."

He added: "So overall the fact 'the State Pension alone may be taxable for some', is primarily a function of the fact that personal allowance is frozen, and the State Pension rises significantly each year.

"One way politicians could avoid it would be to increase the personal allowance (for everyone or just for state pensioners) yet it's worth being aware another way to do it would be to end the triple lock, so the State Pension doesn't rise as high! I'm not aiming making any political point here. Just trying to explain how it works as I've ha