Hundreds of thousands of pensioners could face unexpected tax bills next year due to a combination of rising state pension payments and frozen income tax thresholds, a former UK government minister has warned.
Steve Webb, a former pensions minister now at consultancy LCP, said that with an 8.5% state pension rise expected in April 2024 under the triple lock, and the personal allowance frozen at £12,570, anyone receiving more than £242 a week in state pension will owe tax. While the basic state pension is £156.20 and the new state pension £203.85, many pensioners top up with additional SERPS payments, pushing them over the threshold.
Official statistics show more than 2.3 million pensioners had a state pension of £195 a week or more in November 2020, and Webb estimates that after recent and upcoming rises, almost all will exceed the tax threshold. For those with no other income, HMRC has no automatic way to collect the tax, meaning they may receive a demand after spending their pension.
LCP advises such pensioners to set aside money each month to cover future tax bills. HMRC will write after the tax year ends, requiring payment by the following 31 January. A Treasury spokesperson noted that pensioners with only the basic or new state pension pay no tax, and argued that freezing thresholds has taken millions out of tax, with inflation reduction being the priority.
