A new analysis has suggested that recipients of state pension will be forced to pay income tax from next year.
This is reportedly set to start happening from April 2026, as Deutsche Bank forecasts suggest the state pension will increase to £12,631 next year.
This would push it above the frozen personal allowance threshold of £12,570 for the first time.
Consequently, it is thought that around nine million pensioners will be subject to income tax on their state pension in the near future.
The development has been dubbed “Labour’s retirement tax” by critics.
“As of right now, our projection for AWE in the three months to July sits at 5.5% year on year,” Sanjay Raja, Deutsche Bank’s chief UK economist, said.
The bank predicts the triple lock will spark a 5.5% rise in state pension payments in 2026, driven by projected growth in average weekly earnings, GB News reports.
Not increasing the value of tax thresholds, i.e. freezing them, increases people’s taxable income without tax rates actually increasing.
This is known as fiscal drag, as more taxpayers are “dragged” into paying tax, or into paying a levy at a higher rate.
Some criticise the scenario as a “stealth tax”, aimed at raising more money for the Treasury.
It comes as pensions are also set to lose their inheritance tax exemption from April 2027.
This means the levy may have to be paid on the money people want to pass onto their loved ones when they pass away.
New research has suggested that more than half of Brits consider their pension to be a “key component of their estate planning”.
Experts have warned that making “rash” decisions when trying to mitigate against this change, like withdrawing large sums from pension pots, could lead to “costly mistakes”.
