State pensioners have been warned they could eventually face a tax bill of around £700 as payments continue to rise.
The warning comes after the latest wage figures put the State Pension on course for another increase next April under the triple lock.
Average earnings rose by 3.9%, meaning the State Pension is currently expected to increase by the same amount in April 2027.
This would take the full new State Pension from £241.30 a week to around £250.70, or just over £13,000 a year.
The problem is that the standard Personal Allowance, which is the amount most people can receive before paying Income Tax, currently stands at £12,570.
State Pension payments count as taxable income, although tax is not deducted before pensioners receive them.
Experts have warned that the gap between rising pension payments and the tax-free allowance could become an increasing issue in the years ahead.
Angeline Ong, senior technical analyst at IG, said: “The latest wage growth figures put the spotlight on an increasingly awkward contradiction in the UK’s tax system.”
She said the triple lock was pushing the State Pension higher while the Personal Allowance remained frozen.
Looking further ahead, analysis from IG suggests that if the State Pension continued to increase by an average of 2.5% a year while the Personal Allowance stayed at its current level, almost £3,500 of annual State Pension income could eventually become taxable within a decade.
At the basic 20% Income Tax rate, that could leave someone facing a potential bill of around £700.
However, pensioners receiving only the basic or full new State Pension are not expected to be hit with a tax bill next year.
The Government has previously said people whose sole income is the basic or full new State Pension, without additional payments, will not have to pay Income Tax.
People with other taxable income, such as a private or workplace pension, could have a different tax position.
HMRC says a person’s State Pension is added to their other taxable income when working out whether any Income Tax is due.
