State pensioners urged to 'supplement' income as triple lock fails to beat 'stealth tax'

Pensioners have struggled to make ends meet amid the cost of living crisis and many are at risk of an increased tax burden in the years.

This is due to fiscal drag which occurs when tax allowances are frozen over a period of time while incomes are rising.

Under the previous Chancellor, Jeremy Hunt, tax thresholds were confirmed to be frozen until at least 2028; a policy which looks to be remaining.

Despite the triple lock bolstering pensions, this "stealth tax" is expected to hit more pensioners over the next four years.

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Sarah Coles, the head of personal finance at Hargreaves Lansdown, broke down the financial predicament many older households are being pulled into.

She explained: "The state pension is the backbone of people’s retirement income. But for a decent retirement income it’s important you supplement it with your own retirement savings, whether that’s through a workplace pension or Self invested Personal Pension (SIPP).

"The latest data from HL’s Savings and Resilience Barometer shows only 38 per cent of households are on track for a moderate retirement income. So, clearly there’s still more to do.

"Small actions like upping your contributions when you get a pay rise or new job is one way of boosting your contributions. You should also make sure you’re making the most of any contributions your employer is making."

Under the triple lock, pension payments go up by either the rate of inflation, average earnings or 2.5 per cent; whichever is higher.

With inflation dropping to around 2.2 per cent, analysts are betting on wages being the metric used to determine 2025's state pension hike.

If current estimates stay the same, Britons could see the full new state pension to jump by £517 to £12,019 annually.

In comparison, pensioners claiming the basic rate state pension could be on £9,210 annually from next April.

While this boost would be beneficial at face value, new state pension claimants will be within striking distance of the personal savings allowance.

This is the amount someone can earn without having to pay and it currently stands at £12,750.

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With retirees already failing to have enough saved in retirement, experts are warning that fiscal drag is likely going to exacerbate the situation.

Coles added: "Frozen tax thresholds mean the state pension is creeping closer to tax paying territory and a similar rise next year could even pass it.

"It could also be an issue for those also getting the Additional State Pension leaving them close to the threshold.

"With these freezes in place until 2028, there’s every chance, we could see pensioners relying only on the State Pension paying part of it in tax."