The government has responded to a petition signed by over 10,000 people calling for the State Pension to be exempt from income tax. The petition argues that taxing the State Pension is wrong and that it should not affect the tax threshold.
HM Treasury stated that exempting the State Pension from income tax would be expensive given the current fiscal challenges. It noted that higher-rate taxpayers would benefit more than those with lower incomes, and those below the Personal Allowance would not benefit at all. The government keeps all taxes under review, with any changes announced at fiscal events.
The petition's creator, David Bresnahan, said: "We want the government to make the state pension tax exempt and not impact the tax threshold. We think it is wrong to tax the state pension."
Concerns have been raised that the number of pensioners paying tax is set to rise due to frozen income thresholds. The Personal Allowance is frozen at £12,570 until April 2028, while the New State Pension is projected to exceed this amount by April 2027, potentially reaching £12,578.80 in the 2027/28 financial year under a 2.5% increase.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warned that more pensioners are being "dragged into taxpaying territory" due to frozen thresholds. She suggested that retirees could manage tax liabilities by using tax-free pension withdrawals, ISAs, and making pension contributions to reduce adjusted income.
