Pensions - Articles - New Pensions Tax Allowance as State Pension rise confirmed

However, the government have announced a new Pensions Tax Allowance to address this so those on the low-income pensioners aren’t pulled into paying tax simply because their payments has increased.

“Those with total income between £12,570 and £13,037 will receive the full Pensions Tax Allowance, worth up to £94 in the first year, while it will then taper away at £1 for every £3 of additional income, meaning some support available up to an income of £13,319. This avoids a cliff edge, and the automatic application should make the process easier for people in this income bracket. The policy has been estimated to cost £45m in the first year which is small scale in the scheme of government finances but will be tangible benefit for those affected.

“However, with the State Pension continuing to rise against a frozen Personal Allowance, even relatively small differences in retirement income could lead to different tax outcomes, adding another layer of complexity to the system.”

*Pension Tax Allowance Explainer - GOV.UK