HM Revenue and Customs is sending state pensioners tax bills of up to £1,958, with critics branding the Labour government's policy a 'two-tier' system that is 'brutally unfair'.
An estimated 12.5 million pensioners are caught in this so-called two-tier state pension system, where basic state pensioners are being hit with unexpected tax demands. The Labour government has frozen the personal tax-free allowance at £12,570 until April 2031, meaning many pensioners with additional income face significant tax liabilities.
Pensioner Stories
Dave Morgan, a 72-year-old former building surveyor from Clacton-on-Sea, Essex, worked for 43 years and now has a modest private pension. He is one of the 12.5 million who will miss out on the tax relief promised to those whose sole income is the state pension. 'It's not fair,' Dave said. 'It should be either everyone or no one that benefits.'
Another pensioner, who wishes to remain anonymous, faces an annual tax bill of £1,958. They receive £414 per week from the old state pension, totalling £21,528 per year, which is £8,958 over the personal allowance. After the death of their wife Mary in January, an additional £16 per week brought their total income to £22,360 per year.
Criticism from Campaign Groups
Dennis Reed, founder of campaign group Silver Voices, condemned the policy: 'Taxing any element of the state pension is brutally unfair as this is supposed to be a safety net paid for throughout your working life. It is callous, as it will create so many anomalies.'
Dave Morgan echoed this sentiment: 'I've always paid my taxes and worked hard six or seven days a week. We did everything we were asked of.'
Government Response
Chancellor Rachel Reeves confirmed that anyone whose sole income is the basic or new state pension from the Department for Work and Pensions would not have to pay tax from 2027/28 if the amount exceeds the personal allowance. However, this does not apply to those with additional income.
A Treasury spokesman stated: 'Anyone whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that.'
Former pensions minister Sir Steve Webb commented: 'Most pensioners today pay income tax, and that proportion is rising yearly.'
