State pension set to increase in April

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State pension set to increase in April

The state pension can be dragged into paying taxes next year, given that the payment is significantly higher than expected. These predictions come from recent earnings figures released by the Office for National Statistics, stating that the state pension could increase by 8.5 percent next April. If this happens, the average weekly new state pension could go up from £203.85 to £221.20, while the basic state pension could go up from about £156.20 to £169.50 per week. Although it may be welcomed for retirees, it could also have unintended tax consequences. Jason Hollands, Managing Director of wealth management firm Evelyn Partners, said that the state pension is now set to rise by at least 8.5 percent in April will inflame an already divisive triple lock debate.

While pension saving may still be very tax-advantageous - particularly if a saver is a higher or additional rate taxpayer in their working life but then a basic rate payer when they draw on their pension - Mr Holland explains that this serves to remind today's savers of the value of ISAs. This can provide a valuable supplementary income to pensions during retirement that is not taxed at access. Although contributions to ISAs will be made from taxed income, there is no limit to ISA contributions for most people. The triple lock, a policy enforced in 2010, enables the state's pension increase annually in line with earnings, price rises, or 2.5 per cent, whichever is higher.