New Prime Minister Andy Burnham has been issued a warning after his pledge to honour Rachel Reeves’ tax giveaway for state pensioners. Mr Burnham and his new Chancellor, John Healey, have both promised to commit to the former Chancellor’s Income Tax protection for state pensioners.
Warning from Independent Age
Last year, Reeves announced that state pensioners with no other income – such as savings, property income or private pensions – would not be made to pay tax on their state pension, even if they exceeded the £12,570 Personal Allowance threshold. Now, Mr Burnham has been warned about implementing the policy by charity Independent Age, which said some problems “need to be addressed”.
Morgan Vine, director of policy and influencing at Independent Age, said that the exemption is “welcome” but “questions remain” about how it will be implemented, especially as those with small private pensions will still be “dragged into the tax system”.
Quote from Morgan Vine
“Recommitting to exempting the State Pension from income tax is a welcome signal that the new Prime Minister is listening to the concerns of older people on low incomes. However, questions remain about how the policy will be implemented across a complex pensions system where one solution does not fit all.
“Different versions of the State Pension mean some older people receiving a lower State Pension and a small private pension would be dragged into the tax system, while others receiving only the State Pension will be exempt, despite the amount they receive being largely the same.
“Clearly, this is a situation that needs to be addressed so no older person on a low income loses out. Every day, we hear from older people with chronic money worries who are making difficult decisions to make ends meet, from rationing their energy and water use to skipping meals.
“We look forward to receiving clarity from the UK Government on how the State Pension tax exemption will work to protect all pensioners on low incomes.”
Background of the tax giveaway
Before her departure as Chancellor, Rachel Reeves announced via the Martin Lewis Money Show Live on ITV1 that state pensioners who do not have any other income other than the state pension would not be made to pay income tax. Initially, she had reported in her Budget speech to Parliament that pensioners would not be made to pay ‘small amounts of tax via self-assessment’, but the next day she clarified that this actually meant pensioners would pay no tax at all, as long as they had no other income.
An HM Treasury spokesperson said: “Anyone whose only income is the full new or basic State Pension without any increments will not pay income tax and we are committed to that over this Parliament. By keeping the Triple Lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest Personal Allowance in the G7.”
