Experts have warned that pensioners could face a tax raid in the October Budget if the economic outlook fails to improve. The Spring Statement on Wednesday did not hint at any policy changes, despite analysis showing that retirees whose only income is the state pension could be dragged into income tax as early as next April.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), raised concerns that Chancellor Rachel Reeves had not left enough headroom in the public finances. He said there was a 'good chance' she would need to raise taxes in October, risking 'months of speculation over what those tax rises might be – a raid on pensions, a wealth tax on the richest, another hike to capital gains tax'.
The IFS said extending the freeze on tax thresholds – in place since 2022 and due to end in 2028-29 – by another two years was the 'easiest political win', potentially raising around £10bn. Jason Hollands of Evelyn Partners agreed, calling it the most likely option, as it would allow fiscal drag to pull people into higher tax bands without immediate visibility to voters.
Other potential changes include moving to a single rate of upfront pension tax relief, possibly around 30 per cent, which would benefit lower earners but penalise higher-rate taxpayers. Craig Rickman of interactive investor said this would be 'complicated' and 'not well received'. Nimesh Shah of Blick Rothenberg suggested reducing the annual allowance from £60,000 or limiting relief to the basic rate of 20 per cent.
State pension spending is also under scrutiny, set to rise by 20 per cent to £182bn by 2029-30. Rachel Vahey of AJ Bell noted that Labour pledged to protect the triple lock, but with the state pension rising to £12,570 by next month, it will be perilously close to the personal allowance. Options include means testing or moving to a 'double lock', but any changes would be politically sensitive.
