Andy Burnham and his new Labour Party Chancellor, John Healey, are set to shield state pensioners from tax bills if they live solely on the state pension. However, not everyone will be protected, according to a former Liberal Democrats Pensions Minister.
Sir Steve Webb warned that none of the 8.1 million people receiving the old state pension will qualify for the exemption. The basic state pension from the Department for Work and Pensions (DWP) is worth £9,614 a year – well under the £12,570 personal allowance.
But plenty of these pensioners have additional top-ups that increase their handouts, taking them above the threshold. These additions will be taxable and under the scope of HMRC, Webb cautioned.
Who Will Be Affected?
Out of 13.2 million people currently receiving a state pension, around 700,000 could be spared a tax bill starting next year, according to a report from LCP, where Webb is a partner.
The report estimates that someone wholly dependent on the new state pension would be let off around £88 a year in 2027/28, £153 in 2028/29, and £220 in 2029/30.
Webb, who helped invent the Triple Lock during his time with the Lib Dems in a coalition government with the Conservative Party, says: "It may be reasonably easy to defend not collecting, say, £88 in tax from relatively low income pensioners in year one."
Growing Cost to Taxpayers
He added: "But as the years go by the Government would be writing off hundreds of pounds per eligible pensioner per year, at a growing cost to the taxpayer and an ever greater disparity to those with modest other income."
"At some point a more durable solution will need to be found," Webb concluded.
HM Treasury said: "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 over this parliament."
By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7.
