Chancellor Rachel Reeves (Image: Getty)
Rachel Reeves must take “urgent action” to ensure the state pension is never taxed, campaigners have demanded.
Silver Voices warned that OAPs who have no other income apart from the payments are at risk of being dragged into paying income tax due to frozen thresholds.
The group is calling for the personal allowance to be boosted for pensioners by £1,000 from April, then uprated on the same basis as the triple lock going forward to prevent the state pension from being taxed.
It has launched a new campaign ahead of the Chancellor’s spring statement next month.
Director Dennis Reed said: “In her spring financial statement on March 26, the Chancellor must take urgent action to prevent the basic state pension from being taxed from April 2026.
“Because of the frozen tax personal allowances, and depending on the size of the triple lock increase due next year, the top of the new state pension may breach the current tax-free personal allowance of £12,570 by a small amount in 2026.
“This would then present the ludicrous situation of the state pension safety net, which has already been paid for through national insurance contributions and taxes, being itself subject to tax.
“Taxing some of the state pension would also drive a coach and horses through the whole principle of the triple lock safeguard.”
Silver Voices director Dennis Reed (Image: Getty)
The tax-free personal allowance has been frozen at £12,570 until 2028.
Meanwhile, the new state pension is due to rise to £11,973 a year from this April.
It is a jump of 4.1% in line with the average increase in wages.
Under the triple lock, the state pension goes up each year by whichever is highest out of 2.5%, inflation, or average earnings growth.
An increase of 5% or more in April 2026 will take the new state pension over the personal allowance.
If it does not exceed the threshold in 2026 then it will in 2027 as the triple lock means there will be a rise of at least 2.5% in April 2026 and another 2.5% in April 2027.
Former pensions minister Sir Steve Webb, partner at pension consultants LCP, said: “The continued freezing of the tax allowance alongside some significant increases in the rate of the state pension in recent years means that the new state pension rate is getting close to the tax threshold.
“If earnings growth in the economy remains strong, we could see the new state pension rate exceed the tax threshold as soon as April 2026, but the triple lock rules guarantee that the pension rate will be above the tax threshold by April 2027.”
The frozen thresholds have already led to hundreds of thousands of older people being brought into the taxman’s net.
The number of pensioners paying income tax rose from 7.85 million in 2023/24 to 8.51 million in 2024/25, an increase of 660,000.
Caroline Abrahams, charity director at Age UK, said: “This a really important issue which is only going to grow in prominence over the next few years as it impacts more and more pensioners.
“We agree that it makes no sense for the Government to give with one hand and take away with the other.”
Jan Shortt, general secretary of the National Pensioners’ Convention (NPC), added: “The fiscal drag caused by the freeze on the income tax threshold will mean that between now and 2028, all bar the poorest pensioner and lowest paid worker will be paying income tax.
“NPC has asked the government to stop the freeze and bring the tax threshold up to the level it should have been if inflation had been taken into account. For example, today, the taxable threshold would be something like £15,000 plus.
“Taxing state pensions is a demonstration of the disrespect towards an older generation who deserve financial security in their later years.”
Independent Age Chief Executive Joanna Elson said the charity had heard from pensioners who are worried about the issue.
She said: “We all want a financially secure later life where we have enough to live well, and of course we want that for our older friends, relatives and communities.
“Many of the older people we support are concerned about the prospect of having to pay income tax on their state pension.
“Currently, the tax-free personal allowance is only around £12,570, while someone on the full new state pension will be receiving round £11,973 from April, meaning those adding on a modest private pension may have to pay tax on their low income.
“There needs to be a consensus among all the political parties on the adequate income needed in later life to avoid living in poverty. Once this is established, plans must be put into place so that every older person is able to receive this amount.”
The campaign by Silver Voices comes after the Chancellor, who will deliver her spring statement on March 26, faced an intense backlash for stripping most pensioners of winter fuel payments in her Budget last October.
The previously universal allowance of up to £300 a year was limited to only OAPs on pension credit.
The Labour Government blamed a £22 billion black hole in the public finances left by the Tories, which they denied.
The change meant around 10 million older people missed out on the payments this winter in a bid to save the Treasury up to £1.5 billion a year.
An HM Treasury spokesperson said: “The state pension is the foundation for ensuring pensioners are able to live with the dignity and respect they deserve, and we are committed to protecting the triple lock which will be worth around £1,700 more in 2029.
“Pensioners whose sole income is the new state pension and who have not deferred or receive protected payments do not pay any income tax.”
Comment by Silver Voices director Dennis Reed
We’re on the cusp of something very dangerous for the future of the state pension because if the Government leaves the freeze on the personal allowance until 2028 at least then from next year there is a strong possibility that the state pension itself will be taxed.
This would be a ludicrous situation because we pay for our state pension through our taxes and national insurance and it would then be taxed again as a result of the frozen threshold.
It’s also ludicrous because the state pension is a safety net and you can’t really tax a safety net otherwise it’s not a safety net at all.
This crisis is rapidly coming upon us and it may be that the top of the new state pension just about gets away with not being taxed next year.
But certainly in 2027 there is no doubt that a large number of state pensions will be taxed which makes a mockery of the state pension system.
It also make a mockery of the triple lock safeguard which both ourselves and the Express have campaigned long and hard over because if you are taxing a triple lock increase then what’s the point of the triple lock?
It would undermine the whole integrity and credibility of the triple lock as well.
We all know that the basic state pension, whether it’s the old or new, is the very minimum that is required for a decent standard of living in retirement. Many would argue that it’s too low already.
If you only have the state pension and no other income then the pension credit system will kick in and you’ll be entitled to lots of benefits.
So it’s undermining the whole of the current state pension and benefit system if you start taxing the state pension.
That’s why we’re very strongly arguing that in the spring statement the Chancellor must do something to address this impending crisis.
She must say quite clearly that she will take steps to ensure the basic state pension is never taxed.
We’re suggesting that it should be £1,000 added to the personal allowance for older people, if not for everybody, and a commitment that the threshold will in future be uprated on the same basis as the triple lock.
That would ensure the state pension is never taxed in the future as long as the triple lock remains which would be a good reassurance for older people.
It would also do something to compensate for the loss of winter fuel payments because the majority of older people already pay some tax, even those on modest incomes.
Raising the personal tax threshold by £1,000 if you’re on the basic rate of tax comes to £200 you’re saving and for most people they lost their winter fuel payment of £200, so there’s a nice symmetry there as well.
It’s linking together the future of the state pension, the winter fuel payment and the need to ensure older people keep up with the cost of living.
