Rachel Reeves urged to spare pensioners as fears grow millions more will face tax bomb

Campaigners are urging Chancellor Rachel Reeves to cancel a policy that could force millions of pensioners to pay income tax. 

By 2032, about 10 million pensioners may have to pay tax because the government is not increasing the tax-free income threshold. If this threshold remains the same, even pensioners who rely only on their state pension could have to give some of their money back to the government. 

Alan Less, from the National Association of Retired Police Officers, said the cost of living crisis is still affecting people. He believes state pensions should not become a way to tax more older people.

Speaking on behalf of Later Life Ambitions, a group representing 250,000 pensioners, he urged the government to reconsider freezing tax thresholds. He argued that pensioners should not be penalized for small increases in their income. 

Currently, the tax-free personal allowance is £12,570 for 2024-25. 

Mr. Less also pointed out that cutting winter fuel payments for most pensioners has already made it difficult for many to afford heating and other basic needs. He called on the government to support pensioners rather than making their financial situation worse. 

Caroline Abrahams from Age UK also criticized the idea of taxing state pensions. She said it would be unnecessary and complicated for the government to give money to pensioners only to take it back through taxes. 

She added that older people are worried about this issue, and Age UK has been pushing for an increase in personal allowances.

Raising this threshold would help pensioners in the future and immediately benefit those with small private pensions who already pay income tax. Many of these pensioners are struggling because of rising costs. 

Meanwhile, the Bank of England has warned that inflation could rise to nearly 4%, mainly due to higher energy bills. 

Morgan Vine from Independent Age pointed out that even pensioners who have to pay income tax may still be struggling financially. He said older people on low incomes would find any tax increase concerning. He also noted that suddenly having to file tax returns could be stressful for pensioners. 

A Treasury spokesperson said the government is making difficult decisions to fix the economy and address a £22 billion financial gap left by the previous government.

However, they reassured that the “triple lock” on pensions will remain, meaning that by 2029, the full new state pension will be worth around £1,700 more. They also stated that pensioners who only receive the new state pension, without additional payments, do not have to pay income tax.