More over-65s with small private pensions or modest savings could soon find themselves having to pay income tax, as the personal allowance threshold remains frozen at £12,570.
How the freeze affects pensioners
The personal allowance has been frozen since April 2021, a policy originally introduced by the Conservative government and later extended by Labour Chancellor Rachel Reeves. As a result, the tax-free threshold has not risen with inflation, and hundreds of thousands more pensioners are set to be dragged into paying income tax this year.
Labour has confirmed that people will not be taxed if their sole income is the state pension. However, those with small private pensions or interest from savings face passing the threshold once their total income exceeds £12,570.
The issue has become a growing concern for pensioner groups, who argue that the freeze disproportionately affects those on lower incomes who have seen the value of their state pension eroded by inflation, while any additional income — no matter how small — can trigger a tax bill.
Andy Burnham's response
Andy Burnham, the new Prime Minister, has faced pressure to act over the personal allowance threshold. He had previously suggested he was considering raising the allowance, but has since rowed back on those comments.
Speaking to reporters, Burnham said he would "look at it" but stressed he was making "no commitments." He explained: "All of this will be looked at though at the Budget, and obviously it's difficult given the financial circumstances in which we find ourselves."
He added: "But I wanted to recognise the point because it's challenging for people and it's people on the lowest incomes perhaps who've most been affected by that. So it's an issue that I'm just kind of showing I have a visibility of the issue and the impact it's had on the different groups that I've mentioned, but it's difficult because changing the threshold is not without significant consequences. But I'm looking at it."
Impact on those with modest additional income
For pensioners with a full state pension and a small occupational pension, the combined income can easily exceed the personal allowance. Similarly, those with modest savings who earn interest may find themselves crossing the threshold, even though their overall income remains modest.
The consequence is that a growing number of pensioners are being required to complete tax returns or pay tax through PAYE, reducing their disposable income at a time when the cost of living remains high.
Campaigners have called on the government to raise the personal allowance specifically for pensioners, or to at least index it to inflation. However, any change would come at a significant fiscal cost, which the Prime Minister acknowledged during his comments.
What happens next?
The Budget will be the key moment when Burnham's words are tested. While he has pledged to "look at" the allowance, no concrete commitment has been made. The Prime Minister's reluctance to commit reflects the broader financial constraints facing the government, as it balances the need to support lower-income households with the demands of public spending.
In the meantime, pensioners with small private pensions or savings are advised to check whether their total income is close to the £12,570 threshold, as they may be liable for income tax and could benefit from planning ahead.
With the freeze expected to remain in place indefinitely unless the government acts, the number of pensioners affected is likely to rise in the coming years, adding to the pressure on Burnham to deliver a meaningful response.
