Prime Minister Andy Burnham has been warned over a state pension ‘cliff edge’ that threatens to rob retirees of income. Money expert Martin Lewis has set out a key question to new Chancellor John Healey as he looks set to implement two of Rachel Reeves’ policies in less than six months’ time, without much in the way of detail about how exactly it’s going to work.
Tax exemption for state pensioners
As reported by the Express, state pensioners who receive only their state pension payments from the DWP will not be made to pay tax on their state pension, as long as they receive no other income.
This will come into effect when the full, new state pension for those with a full National Insurance record passes the £12,570 Personal Allowance tax threshold for the first time, which, thanks to the next triple lock increase, is due to do from April 2027.
Statements from HM Treasury about this tax exemption suggest that state pensioners who receive ‘any other income’ will be made to pay tax, suggesting that it is a ‘cliff edge’ - even a few pounds of income or private pension will cause the tax exemption to be lost and result in a tax bill.
Martin Lewis questions the Chancellor
Now, money man Martin Lewis has directly asked John Healey for clarification on how this will work.
He said: “An important question for @JohnHealey_MP. Next April
“Full new State Pension will likely rise to £13,040/yr
“Tax-free personal allowance frozen at £12,570/yr
“So the full new State Pension would normally attract tax. Yet you've said you'll honour former Chancellor Rachel Reeves' promise that those whose ONLY income is the State Pension won't pay tax.
“But will that be a cliff edge?
“If someone gets say just £30/yr from a tiny pension from an old job, would they lose that protection and face around £100 in tax for just thirty quid income?”
Martin also pointed out that state pensioners face losing their tax exemption due to savings interest, and the question of whether it is lost if the money is still within the Starting Rate for Savings has not been answered.
He added: “And what about a little savings interest? Even if it's tax-free under the starting rate for savings, would it count as extra income and cost them the tax?
“This needs to be thought through when you tell us in the budget.”
An HM Treasury spokesperson previously 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.”
