DWP issues update on raising tax allowance for state pensioners

Labour has issued an update on its plans to increase the personal allowance after a question about increasing the limit for state pensioners. Conservative MP Sir Ashley Fox asked the Department for Work & Pensions (DWP) if it had looked at increasing the tax-free allowance in line with the state pension.

In response, pensions minister Torsten Bell said: "Currently the personal allowance, which is the amount an individual can earn before paying tax, is higher than the full rates of both the basic and new state pensions.

"This means pensioners whose income is solely the full new state pension or basic state pension will not pay any income tax."

The personal allowance allows a person to earn up to £12,570 a year without paying income tax. After the 4.1% increase in state pension payments this month, the full new state pension now pays £230.25 a week, or £11,973 a year, just under £600 from being taxable.

The full basic state pension is £176.45 a week, or £9,175.40 a year, some £3,400 away from crossing the threshold.

Mr Bell went on to explain that there are changes to the personal allowance coming up. He said: "The previous Government made the decision to freeze the income tax Personal Allowance at its current level of £12,570 until April 2028.

"At our first Budget, we decided not to extend the freeze on personal tax thresholds." He also cited figures showing that in the 2022/2023 tax year, more than 80% of pensioners were already paying income tax.

The minister also said: "This Government is absolutely committed to supporting pensioners and giving them the dignity and security they deserve in retirement.

"Over 12 million pensioners will benefit from our commitment to protect the triple lock which is set to increase spending on the state pension by around £31billion and will increase people's yearly state pensions by up to £1,900 this Parliament."

The triple lock ensures state pension payments go up each April in line with the highest of 2.5%, the rise in average earnings or the rate of inflation. The average earnings metric determined the 4.1% increase this month.

With the ever increasing state pension bill, many experts are warning the triple lock policy may soon have to change with the annual state pension increase becoming less generous.

Helen Morrissey, head of retirement analysis at , said: "The state pension was spared the benefits overhaul announced in the recent Spring Statement, but rumours continue to swirl around whether the triple lock will remain, and such uncertainty can undermine people's confidence in the system.

"Putting the state pension on a firm long-term footing is vital to build this confidence and should be considered as the Government assesses adequacy issues during the second part of its Pension Review.

"Understanding what adequacy is, how it is to be achieved and the state pensions role as part of that will reduce speculation and help people to plan without fear."