Published On: Mon, Nov 27th, 2023

New state pension blow as triple lock hike cut to just 6.8% in Hunt stealth raid | Personal Finance | Finance

New state pension blow as triple lock hike cut to just 6.8% in Hunt stealth raid | Personal Finance | Finance
New state pension blow as triple lock hike cut to just 6.8% in Hunt stealth raid | Personal Finance | Finance


It’s well known that the Treasury gives with one hand and takes away with the other, but Hunt has turned that process into an art form. Last week, he cut two percent off the National Insurance (NI) rate yet this only returns a fraction of the extra tax workers pay thanks to the freeze on income tax and NI thresholds.

Now we can reveal that Hunt has pulled a fast one on state pensioners, too. In practice, the triple lock won’t increase their incomes by 8.5 percent, as he would like to us to believe.

The actual increase for more than eight million pensioners will work out as just 6.8 percent, after HM Revenue & Customs has been to work.

And once again, Hunt and Rishi Sunak‘s six-year tax threshold freeze is to blame.

In April 2016, when the new state pension was introduced, it was worth £8,093 a year. The personal allowance – the point at which people start paying income tax on their earnings – stood at £11,000.

This meant the full new state pension was initially worth 73.57 percent of the personal allowance. Pensioners could generate a further £2,907 from workplace or personal pensions before breaching it and paying income tax.

In the current tax year, the maximum new state pension is worth £10,600. With the personal allowance frozen at £12,570, the state pension eats up 84.33 percent of the personal allowance.

This means pensioners only need to generate another £1,970 before they start paying income tax on their total earnings. That’s £937 less than in 2016 and it’s set to get worse.

From April next year, the new state pension will rise to £11,501, thanks to that 8.5 percent triple lock increase.

The personal allowance will remain exactly the same at £12,570. This means the state pension will soon eat up a whopping 91.50 percent of the personal allowance.

Pensioners will only need £1,069 worth of income to breach it. More than eight million pensioners are now expected to pay income tax from next April. Given that there are just over 12 million in total, that’s more than two thirds.

Their numbers will rise every year that the personal allowance is frozen. It’s currently slated to stay at £12,570 all the way to 2028.

The impact of this extra tax charge will be significant.

Take the case of somebody who gets total workplace and pension income of £7,000 a year, on top of the new state pension.

In the current tax year, their combined income will total £17,600. Assuming their personal pension income remains flat at £7,000 next year, their total income including the £11,501 state pension will rise to £18,501.

That’s worth £901 more but because of the personal allowance freeze, their net pay rise will be lower than they think.

READ MORE: We will always back British pensioners, says Tory Minister Mel Stride

In the current tax year, £5,030 of their income will fall above the personal allowance where it will be taxable at 20 percent.

The pensioner will hand £1,006 of income tax to HMRC.

From April, £5,931 of their income will be taxable. This means their tax bill will be £1,186.20, which is £180.20 more than today.

As a result their triple lock increase is only worth £720.80 rather than £901. So they’re getting a real terms increase of 6.8 percent, and have a right to feel aggrieved.

Of course, pensioners aren’t the only ones who won’t be feeling happy. Last week’s NI cut handed 27 million workers an average tax cut of £350. Yet they will paying four times as much tax due to the freeze.

The NI cut will cost the Treasury £9.44billion, but the stealth tax threshold squeeze will generate an extra £44.6billion a year by 2028.

At least workers got an NI cut. Pensioners do not pay NI, so do not benefit. They pay income tax, though, and more every year.

Which means each triple lock increase is worth less and less to them (and more and more to HMRC). Nice work, Mr Hunt. You’ve done the Treasury proud.


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