Chancellor Rachel Reeves has confirmed that pensioners whose only income comes from the state pension will not be required to pay income tax before the end of the decade. However, this pledge could leave millions of pensioners behind, with warnings that 12 million state pensioners face being excluded from the new rule.
Policy Details and Coverage
Reeves stated that the government is working on a solution to ensure that pensioners with only state pension income are not taxed, as the state pension is expected to cross the tax threshold in 2027. She made the commitment for this Parliament, saying, "In this Parliament, they won't have to pay the tax." However, she added, "Further out, I'm not about to make any commitments on that."
According to pensions specialist Hannah Martin, founder of Rich Retiree, the policy risks creating disparities between different groups of retirees. She noted, "It's estimated that, of the 13.2 million people currently receiving a state pension, fewer than one million will be covered by the policy." This means over 12 million pensioners may still be subject to income tax on their state pension.
Fairness Concerns
Martin highlighted potential unfairness, explaining, "As an example, someone who only receives a basic state pension and tops it up through work or other means won’t benefit, even if they ultimately earn the same amount as someone claiming the full state pension." She suggested an alternative solution: "One alternative solution could be to increase the tax allowance for pensioners so that anyone wholly dependent on the new state pension would be under the tax threshold."
The warning comes after pressure from BBC and ITV star Martin Lewis. Last year, Reeves confirmed that around 13 million pensioners would receive the triple lock. During an interview with Lewis, she said, "You're right, 2027 looks like the time that it will cross over. We are working on a solution, as we speak, to ensure that we're not going after tiny amounts of money."
Impact on Pensioners
The policy aims to protect the poorest pensioners, but critics argue it fails to address the broader issue of pensioner poverty. With the state pension rising under the triple lock, more pensioners may be dragged into paying income tax unless the tax thresholds are adjusted. The government has not yet announced specific measures to address the tax burden on the majority of pensioners.
