Many pensioners are already getting by on a limited income, but this could be squeezed further due to frozen personal allowances. In his Autumn Statement, Chancellor Jeremy Hunt announced a variety of tax allowances would be frozen for another two years – taking the freeze up to 2028.
However, the decision to freeze personal allowances – the amount a person can earn before paying tax – could mean hundreds of thousands of pensioners see their tax bill rise, or pay tax for the first time due to a stealth raid.
One potential issue relates to the rising state pension and the triple lock.
The return of the triple lock is set to deliver a bumper boost for pensioners, with a 10.1 percent increase in line with inflation, taking the full new state pension to £10,600.
However, iSIPP, the pension provider, has warned this could push those with small pensions into paying tax as the Personal Allowance has been frozen at £12,570.
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Individuals who are on higher incomes are also facing the same issue, as higher rate thresholds have been frozen at £50,270.
As a result, these Britons will need to be very careful about taking pension lump sums.
Hrishi Kulkarni, iSIPP managing director, said: “The number of over-65s paying income tax has been steadily rising over the past 10 years but April this year is likely to see another sharp increase.
“A combination of frozen tax allowances and the rise in the state pension will mean many people with private pensions will face increased tax bills with some paying tax for the first time.
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“It is important people budget for the potential tax bills.
“This is particularly given the cost-of-living squeeze and also that where possible they maximise tax-free savings.
“Tax in retirement is increasingly inevitable so maintaining contributions to private pensions and ensuring fees on funds are minimised by consolidating funds where possible is important for people of all ages.”
Currently, there are around 7.7 million taxpayers aged over 65 – including those who still work.
Over the past 10 years, the number of these Britons paying tax has increased by 43 percent, according to iSIPP.
Most recent Government data shows the average gross income of retired households comes in at around £32,265.
Benefits and payments including the state pension are thought to account for 41 percent of total income.
While income from private pensions accounts for 43 percent of gross income.
The organisation said retired people already contribute more than £57.22billion a year in direct taxes. This works out at roughly £4,961 annually for a retired household.
Any state pension a person receives is liable to income tax. However, it is paid out to a person before any tax is deducted.
Once someone reaches state pension age, they will no longer have to pay National Insurance contributions.
