Proposal to Deduct Tax from State Pension Before Payment
Andy Burnham, widely seen as a future prime minister, could be granted the authority to automatically withhold income tax from some people's state pension payments before they are deposited into accounts, according to reports. The proposal, being considered by the Labour government, would see the Department for Work and Pensions (DWP) deduct income tax ahead of pension payouts landing in accounts.
Policy Under Consideration
There has been no final decision on whether to implement the policy, first reported by City AM and later by the Telegraph. The plan would apply a default 20% basic rate of tax to all state pension payouts that exceed the personal allowance, with any overpaid tax refunded at the end of the tax year. Current forecasts indicate that the full state pension could rise above the £12,570 personal allowance in the 2027-2028 tax year, making part of it liable for income tax.
Outsourcing and Impact
The Telegraph reported that the operation could be outsourced to a private sector contractor if the policy is enacted. Under the plans, the basic 20% rate of tax would be applied when the state pension exceeds the tax-free allowance, which is expected to occur from next year.
Political Reactions
In an interview with the i Paper, Mr Burnham stated that tearing up the manifesto commitment would be a “very damaging thing to do.” This comes despite Rachel Reeves, widely expected to be replaced as Chancellor by Ed Miliband, previously ruling out forcing pensioners whose sole income is the basic or new state pension to pay tax on it from April 2027.
Government Statement
A government spokesman told the Telegraph: “There has been no change to the tax treatment of the state pension. The Government routinely undertakes research to better understand pensioners’ experiences with the tax system.”
