A stealth tax would wipe out more than three-quarters of the triple lock increase in the National Pension, new analysis has revealed.
On April 6th, 12 million retirees received an 8.5% increase in their national pension due to the triple lock.
The new full state pension for the 2024/25 tax year will rise to £221.20 a week, or £11,502.40 a year, leaving just over £1,000 in personal allowance.
Those eligible for the basic rate who reached state pension age before April 2016 will receive £169.50 a week, or around £8,800 a year.
The full amount of the new state pension will increase by around £900 a year and the full amount of the basic state pension will increase by £691 a year.
The increase, despite being worth an extra £900 a year to those on the new full state pension, comes as the triple lock increase has been largely canceled out by Jeremy Hunt’s stealth tax rise. In real terms, recipients will only be living on an extra £20 this year. The Resolution Foundation stated:
A new analysis reveals that more than three-quarters of the triple lock increase in the National Pension will be canceled due to the stealth tax.
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A significant portion of this increase will be recovered by the government due to fiscal constraints.
Although the government has announced cuts to national insurance, the think tank highlighted that eight million pensioners could still see their incomes hit because they will not be paying national insurance.
With around 1.6 million pensioners expected to exceed the income tax threshold by 2027-2028, Dean Butler, managing director at Standard Life, said Britons could cut their tax bill. And shared some ways you can get back more money.
Tax classification
Earnings of less than £12,570 are usually tax-free, but if you start earning more, you could end up paying up to 45 per cent tax.
- 12,570 – £50,270 will be subject to 20% processing fee
- £50,271 and £125,140 pay 40% tax
- 45% is paid on amounts over £125,140
The standard amount for personal allowances has been frozen until 2028, and pensioners will be forced to pay more tax due to the increase in the national pension.
Mr Butler said: “For wealthy pensioners who pay higher rates of tax, the extra £17 they receive each week as a result of the tax increase is worth less than £11 once tax is taken into account.”
He warned that pensioners need to be aware of how close they are to the next tax step.
If your current income is close to £50,270, a £900 increase could take you up to the next tax rate, meaning you would start losing 40 per cent in tax.
private pension withdrawal
The increase in the state pension could allow pensioners to delay withdrawals from their private pensions, giving them more time to build up their pensions.
Brits can also take into account pensions, defined benefit pensions and make tax-free lump sum distributions.
“In most cases, you can withdraw 25 per cent tax-free from your pension,” Butler says.
“You don’t have to take all the money at once, and by spreading the amount over multiple years, you can keep your taxable income below different tax thresholds.
“If you just use the tax-free part of your pension, the rest can grow over time if you keep investing it.”
salary sacrifice
A salary sacrifice scheme is a government-backed scheme in which employees give up part of their (pre-tax) salary and transfer the amount they would otherwise receive into a ‘non-cash’ benefit such as a pension contribution. I agree. – Off shopping and traveling.
When people earn less, they pay less tax.
Butler said the same applies to bonuses. He added: “If you receive a work bonus, you may have the option of putting some or all of it into your pension.
“Doing so could potentially save you money on tax and National Insurance contributions, meaning you could keep more of your bonus in the long run.”
Reduce profits from drawdowns
Brits can take the same amount out of their private pension as their state pension increases if they are living comfortably in retirement.
This allows pensioners to avoid taxes on money they don’t need yet, and it also allows them to keep the money in the account and continue to grow.
Postponement of national pension
There is no need to claim the National Pension once you reach the age of receiving the National Pension.
For every nine weeks someone defers their new state pension, they will receive an extra 1 per cent when they actually claim it.
take over pension
Pensions are not subject to inheritance tax, so if you die before your 75th birthday, your loved ones won’t have to pay income tax if they pass it on within two years.
If someone has a pension they don’t need yet, they can avoid paying tax by leaving it as an inheritance.
If you die after age 75 or if you inherit after two years have passed, no inheritance tax will be due, but income tax will be at the heir’s marginal tax rate.
