State pensioners could lose £8,000 in DWP payments due to change | Personal Finance | Finance
State pensioners could face a drastic £8,000 annual reduction in their payments due to an impending change that many are unaware of. The triple lock guarantees that state pension rates rise each April by the highest of 2.5%, average earnings growth, or inflation.
However, if next year’s increase exceeds 5%, the full new state pension will be subject to income tax, which could cause major changes for some people’s finances that they don’t know about, reports Plymouth Live. Currently, individuals can earn up to £12,570 annually before paying income tax in line with the personal allowance. Yet, the full new state pension stands at £230.25 weekly, or £11,973 yearly, which is just £600 shy of the income tax threshold. Rebecca Lamb, external relations manager at Money Wellness, said: “Many people understandably assume that a small rise in their pension is a good thing. But if it pushes them just over the personal tax allowance, it won’t just mean paying a bit of income tax – it could disqualify them from Pension Credit, which in turn opens the door to a much larger loss.”
“Pension Credit acts as a gateway to a wide range of help: Housing Benefit, Council Tax Reduction, free NHS dental and eye care, the Warm Home Discount, Cold Weather Payments, and even the free TV licence for over-75s.
“In total, someone could end up losing more than £8,000 a year in support, all because their pension creeps just above the threshold.”
Ms Lamb has voiced concern that numerous pensioners might inadvertently exceed the income threshold, thereby forfeiting crucial benefits. She said: “What’s most worrying is that many won’t see it coming.
“There’s no clear warning when someone is about to lose entitlement, and pensioners who aren’t online or don’t have support with money matters may not realise until it’s too late.”
Pension Credit serves as an income supplement, potentially boosting weekly income to £227.10 for single individuals and £346.60 for couples.
Depending on personal circumstances, such as caring responsibilities or severe disabilities, you could qualify for additional amounts. On average, Pension Credit claimants receive an extra £3,900 in support, although the actual figure can differ.
Despite the Government’s recent push to increase applications, it’s estimated that a vast number of people are still not claiming the benefit. You can use resources like the benefits calculator on the Turn2us website to determine your eligibility for Pension Credit and other benefits.
Should state pension payments rise by 5% next year, an additional 1.6 million pensioners could become subject to income tax, potentially raising the total number of taxpayers to approximately nine million.
