State pensioners in the UK might face a surprising problem next year — a small increase in their pension could actually leave them worse off, according to financial experts. A possible 5% rise in the state pension could push many retirees just over the personal tax allowance, which may lead to income tax charges and loss of valuable benefits like Pension Credit.
This could affect millions of pensioners, many of whom may not even realise what’s coming until it’s too late. Let’s break down how this change could impact your finances and what you can do about it.
What Is the Triple Lock and Why It Matters
The state pension triple lock is a rule that increases pensions each April based on whichever is highest: inflation, average earnings growth, or 2.5%. It’s meant to protect pensioners from rising living costs.
But if this increase goes beyond 5% next year, it could create a new problem — pushing pension income above the tax-free personal allowance of £12,570 per year.
Currently, the full new state pension is £230.25 per week, which totals about £11,973 per year — just £600 below the tax threshold.
How a Small Increase Could Lead to Big Losses
A rise of more than 5% would push the yearly pension income over the tax threshold. At first, that may sound like good news — more money in your account, right? But it’s not that simple.
Rebecca Lamb from Money Wellness warns that going just a little over the threshold doesn’t just mean paying income tax — it can also lead to losing access to Pension Credit, a benefit that opens the door to:
- Housing Benefit
- Council Tax Reduction
- Free NHS dental and eye care
- The Warm Home Discount
- Cold Weather Payments
- Free TV licence for over-75s
Losing access to these can result in an annual loss of more than £8,000, making the small pension increase feel like a huge financial setback.
Why Many Pensioners Won’t See It Coming
One of the biggest concerns is that there’s no clear warning system. Pensioners who don’t use the internet or have no financial advice may miss the signs until they’ve already lost their benefits.
Many still do not know about Pension Credit or assume they aren’t eligible. However, eligibility depends on income, and the Government encourages older people to check their status using online tools like the Turn2us benefits calculator.
What Is Pension Credit and Who Can Get It?
Pension Credit is a government benefit that tops up your weekly income. If you’re eligible, you can get:
- Up to £227.10 per week if you’re single
- Up to £346.60 per week if you’re in a couple
You could get more support if you’re a carer, severely disabled, or have other special circumstances.
On average, claimants receive around £3,900 a year in extra help. But again, if your income slightly crosses the tax threshold, you might lose this entirely.
How Many People Could Be Affected?
If the pension increases by 5% or more next year, 1.6 million more pensioners could become liable to pay income tax. This would bring the total to about 9 million UK pensioners paying tax on their pension income.
A rise in the state pension might sound like good news, but for many pensioners, it could trigger a series of losses — including access to Pension Credit and other essential benefits. This is why it’s so important to check your eligibility regularly and stay updated on income limits.
If you or someone you know receives a state pension and is close to the personal tax threshold, it’s a good idea to speak to a benefits adviser or use trusted online calculators like Turn2us to avoid surprises. Being just a few pounds over the limit could end up costing thousands in lost support.
FAQs
Will I pay tax on my state pension?
You won’t pay tax unless your total income, including state pension, goes above the personal allowance (£12,570). However, a 5% pension rise could push your income over that limit.
What is Pension Credit and why is it important?
Pension Credit is a benefit that boosts your income and gives access to extra help like Housing Benefit, free NHS dental care, and a free TV licence for over-75s.
Can I lose Pension Credit if my pension income increases?
Yes, even a small rise that crosses the tax threshold may disqualify you from Pension Credit, which could lead to losing over £8,000 in yearly support.
How can I check if I still qualify for Pension Credit?
You can use tools like the Turn2us benefits calculator or contact a local advice service to check your current eligibility.
How many pensioners could be affected?
If pensions rise 5% or more, about 1.6 million more pensioners may pay income tax, raising the total to nearly 9 million affected individuals.
