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Working pensioners no better off after new tax to wipe out state pension rise

Two government announcements today will batter workers above retirement age- a watering down of state pension increases and a new tax on incomes to fund social care

Today’s Tory changes really bite in 2023, when a new tax on work comes in

Working pensioners will be no better off from state pension increases in 2023 after government today announced a 1.25% tax hike and derailed a major state pension increase.

A 1.25% NI hike was confirmed today to help fund social care – despite this being a breach of the 2019 Tory manifesto.

The 1.25% increase will apply to working age pensioners from April 2023, though it will be called the Health and Social Care Levy.

Also today the Conservatives confirmed that next year’s state pension increase of up to 8.8% will be scrapped .

State pensioners instead will get an increase of either 2.5% or one tied to inflation – which could be higher.

What this means for working pensioners

In a nutshell, older workers who can claim their state pension will get at least a 2.5% increase in 2022 but will see these gains eroded in 2023.

Many people above retirement age are still in the workplace


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In 2022 – £233.48 state pension increase

The full state pension is currently £179.60 a week – and this would rise by £4.49 in 2022 if there is a 2.5% increase.

That’s an extra £233.48 a year.

Someone getting the full ‘old’ state pension of £137.60 would get an extra £3.40 a week.

But the state pension could rise by more than this under an agreement called the triple lock.

This guarantees that the state pension will go up every year by 2.5%, earnings growth or inflation.

The Tories today removed the earnings part of that guarantee for one year after a massive spike in the figure.

But inflation is also high, at 2.1%, and could rise even further , which would be great news for state pensioners if it means they end up getting more than a 2.5% hike in the benefit.

In 2023 – £239.20 extra state pension, but £224.65 tax on wages

From April 2023, older workers with the full state pension would get another increase of at least 2.5%, or an extra £4.60, taking their total to £188.69 a week or an extra £239.20 a year.

But they would also then have to start paying an extra Health and Social Care Levy of 1.25% on whatever they earn above £9,564 a year.

The average full-time worker aged 60 and above earns £529.55 a week, according to the latest figures from the Centre for Ageing Better.

That’s £27,536.6 a year, meaning the typical full-time older worker will pay an extra £224.65 a year in the new tax.

That almost entirely wipes out the state pension increase, leaving the typical older worker just £14.55 year better off from 2023.

Why the tax hikes are coming in

The Conservatives want to fund the struggling social care sector and slash Covid backlogs .

In return there will be a new cap to the amount people in England spend on care over their lifetime, and a new asset floor at which the poorest no longer have to pay.

But the Prime Minister appears to have breached a second manifesto pledge , in 2019, that no one would have to sell their home to pay for care.

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