A state pensioner campaign group has issued a stark warning for retirees regarding the £12,570 HMRC personal tax-free allowance. The Civil Service Pensioner Alliance (CSPA) has criticised the Labour Party government over the rule, which has remained unchanged since 2021.
Frozen income tax thresholds are having a growing impact on UK pensioners, dragging millions into the tax system through what is known as 'fiscal drag'. Although tax rates themselves have not risen, the personal allowance has been frozen at £12,570 since 2021, the CSPA said. Meanwhile, pensions and wages have increased with inflation. As a result, many pensioners are now paying tax for the first time, despite seeing little or no real improvement in their living standards, the CSPA added.
Sharp Rise in Pensioner Taxpayers
According to the Institute for Fiscal Studies (IFS), the number of pensioners paying income tax has risen sharply in recent years. Around 6.7 million pensioners paid income tax in 2021–22, but this has increased to approximately 8.8 million by 2025–26. Forecasts suggest that as many as 9.3 million pensioners—around three quarters of all pensioners—could be paying income tax by 2030 if thresholds remain frozen.
The IFS has also warned that by 2027–28, the full new State Pension from the Department for Work and Pensions (DWP) will exceed the personal allowance, meaning pensioners relying solely on the State Pension could become taxpayers for the first time.
Stealth Tax Increase
Had the personal allowance increased in line with inflation since 2021, analysts estimate it would now be worth around £15,000 to £17,000, rather than £12,570. This means pensioners are effectively facing a stealth tax increase simply because thresholds have failed to keep pace with the cost of living.
The CSPA stated: 'At CSPA, we believe this is unfair. Pensioners on modest fixed incomes should not be penalised through frozen tax thresholds while everyday costs continue to rise.'
As part of their Later Life Ambitions Budget for Later Life, the CSPA is calling for income tax thresholds to increase in line with inflation to prevent unfair real-terms tax rises. This includes a significant increase in the basic income tax threshold based on the Bank of England's inflation calculator.
The organisation also wants continued protection of the 25% tax-free pension lump sum, giving retirees greater financial security when accessing their pension savings, alongside safeguarding ISAs and other tax-free savings platforms. 'Together, these measures would help protect older people from being dragged unnecessarily into the tax system,' the CSPA concluded.
