Hundreds of thousands of state pensioners across the UK could be facing unexpected tax demands from HMRC following the upcoming Autumn Statement, with some potentially required to pay over £1,000.
Budget Proposal Puts Pensioners in the Firing Line
The potential financial blow is linked to options being considered by Chancellor Rachel Reeves for her Autumn Budget on November 26. According to analysis by investment firm AJ Bell, one likely move is a 'two up, two down' tax package. This would involve increasing income tax by 2 percentage points, pushing the basic rate to 22%, while simultaneously cutting National Insurance by 2 percentage points, reducing the starter rate to 6%.
While this shift might benefit some workers, it poses a direct problem for pensioners. Once an individual reaches state pension age, they stop paying National Insurance altogether. This means that any pensioner liable for basic-rate income tax would see their tax bill rise without receiving the compensatory benefit of a National Insurance cut.
The Stark Financial Impact on Retirement Incomes
The figures involved are significant. AJ Bell has calculated that a pensioner with a taxable retirement income of £35,000 would face an annual tax increase of almost £450. For those with a more substantial income of £65,000, the tax hike would be a stinging £1,000 or more.
This proposed change is seen as a way to rebalance the tax burden. The Chancellor is reportedly aiming the shift at groups like landlords and pensioners. The 'two up, two down' package could generate an estimated £6 billion for the Treasury. However, the Resolution Foundation think tank has suggested that a much larger sum of £20 billion in tax rises is needed by 2029-30 to meet the government's own fiscal rules.
Political Peril in Targeting Pensioners
There is a recognition within the financial and political spheres that targeting pensioners carries significant risk. Scott Gallacher, director at Rowley Turton, told FT Adviser that while the public may have little sympathy for landlords, the recent controversy over the scrapping of the winter fuel allowance demonstrates that "granny is off limits as far as the Great British public is concerned."
Chancellor Reeves has signalled a willingness to make tough decisions. In a recent speech, she stated her priority was the "national interest" over "political expediency." She affirmed, "As I take my decisions on both tax and spending, I will do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity and to ensure that the economy that we hand down to future generations is secure."
For many pensioners born before 1959, the Autumn Statement on November 26 will now be a date watched with considerable anxiety, as they await confirmation of whether this theoretical tax hit will become a financial reality.
