Millions of retirees could have income tax automatically deducted from their state pension before they receive it, under new proposals reportedly being considered. The plans would apply the basic 20% rate of tax to payments when the state pension rises above the tax-free allowance of £12,570 from next year.
Proposals Under Review
The Telegraph reports that no decisions have been made about whether to go ahead with the policy, which were circulated as part of research commissioned by the Department for Work and Pensions (DWP). 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.”
Under the proposals, those with no other income aside from the state pension may be eligible for a refund at the end of the tax year. This comes after Chancellor Rachel Reeves confirmed earlier this year that those whose only income is the state pension will not pay any income tax.
Triple Lock and Pension Increases
The state pension rises every April in line with the triple lock, which guarantees increases by whichever is highest out of earnings growth between May and July, inflation in September, or 2.5%. The full new state pension is currently worth £241.30 a week (£12,547.60 a year), and the old basic state pension is £184.90 a week (£9,614.80 a year).
Earlier this month, Makerfield MP Andy Burnham, widely tipped to become Prime Minister after Sir Keir Starmer announced he was standing down, said he would commit to keeping the triple lock. In an interview with the i Paper, Mr Burnham said tearing up the manifesto commitment would be a “very damaging thing to do”. He has also hinted at revisiting the income tax personal allowance, which is currently frozen until April 2031.
Impact on Pensioners
The personal allowance is the amount you can earn each year before paying tax. With the state pension set to exceed this threshold, many pensioners could face automatic deductions. The Mirror has contacted the DWP for comment.
