Chancellor Rachel Reeves has been urged to act on pensions (Image: Getty)
Rachel Reeves has been urged to use her spring statement to stop pensioners being hit with tax bills. A petition by Silver Voices calling for the Chancellor to unfreeze the tax-free personal allowance for OAPs has surpassed 100,000 signatures.
The campaign group fears older people on modest incomes will be pulled into paying income tax due to triple lock increases and frozen thresholds. Director Dennis Reed said: "The Chancellor must take action to raise the lower tax threshold for older people next week, to prevent the double whammy of scrapping winter fuel payments and then taxing 20% of the triple lock increase. It would add insult to injury if the Chancellor was perverse enough to extend the frozen thresholds beyond 2028, as then virtually all older people would be paying tax on their pensions, and having a reduced triple lock increase every year.
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"The stupendous support for our petition shows that we have the UK public on our side and the Chancellor must reintroduce age-related tax allowances."
The group, which campaigns for over-60s, is calling for the personal allowance for pensioners to be raised by ￡1,000 next month, then in line with the triple lock going forward.
It has been frozen at ￡12,570 until 2028, but the new state pension is catching up as it is due to increase to ￡11,973 next month.
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Under the triple lock, the state pension rises each year by whichever is highest out of 2.5%, inflation, or average earnings growth.
And the state pension could surpass the personal allowance from as early as next year if there is a triple lock boost of 5% or more in April 2026.
But if it does not exceed the threshold next year, it will the year after as the triple lock means there will be a rise of at least 2.5% in April 2026 and 2.5% in April 2027.
Frozen thresholds have already seen hundreds of thousands of older people dragged into the taxman's net.
The number of pensioners paying income tax rose from 7.85 million in 2023/24 to 8.51 million in 2024/25, an increase of 660,000.
Prime Minister Sir Keir Starmer on Wednesday failed to repeat the Chancellor's commitment not to extend the freeze on income tax thresholds ahead of next week's statement.
Conservative leader Kemi Badenoch had asked him to affirm the pledge during Prime Minister's Questions.
In the autumn budget, Ms Reeves did not extend the freeze on the thresholds at which people start to pay different rates of income tax.
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Thresholds were initially frozen by the previous Conservative government until April 2028.
But the Chancellor is not expected to change taxes at next week's spring statement.
Labour has faced an ongoing backlash for stripping most pensioners of winter fuel payments.
The Government blamed the state of the public finances for restricting the previously universal allowance to only OAPs on pension credit.
Morgan Vine, director of policy and influencing at Independent Age said: “From the strength of this petition, it is clear that many people in later life are concerned about the prospect of paying income tax on their State Pension. For the older people on a low income we support, it’s not hard to see why. People in later life tell us they are already sitting under a duvet or going to bed early because they can’t afford heating, or not eating fresh food because of the cost. They cannot afford to lose any of their income.
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“In April, the gap between the new State Pension and the tax-free personal allowance will reduce further to less than ￡1,000. This will lead to people with small private pensions, like Colette, facing taxation that will put their finances under even more strain, especially after the loss of the Winter Fuel Payment for many.
“The tax freeze is one element of a system that is not working for older people on a low income. We are calling for all political parties to come together to decide what is the adequate income needed to prevent poverty in later life. Following this, long-term plans must be put into place to ensure every older person is able to receive this amount.”
The Treasury has been contacted for comment.
By Dennis Reed, Director of Silver Voices
Millions of older people are already in the tax system because they have private pensions (often very modest) or income from savings. Every one of these pensioners is, in effect, having their state pension taxed because their pension is added to their other income without mitigation, and taxed accordingly. So, for these millions, any Triple Lock increase is taxed and reduced by 20%.
Although legally defined as a “benefit”, the state pension is paid for throughout our working lives by tax and national insurance contributions, and it makes no sense to tax it again. Most benefits are not taxed. The best solution would be for the tax system to discount any income received from state pension entitlements. But that is not the situation we find ourselves in.
Because of the freeze on the lower tax threshold since 2021, introduced by the Tories and gratefully continued by Labour, the majority of pensioners have been sucked into the tax system. This number increases in leaps and bounds each year, with 660,000 pensioners added in the last financial year alone. Now even those with tiny occupational pensions or additional state pension entitlements have become liable for tax. And from 2026 those whose only income is the new state pension will probably have to start paying tax on it.
The DWP has no way of taking tax from the state pension at source and so tax liabilities will be notified after the money has been paid, leaving many pensioners struggling to pay back the arrears. We doubt that the Government has considered the full administrative implications of this crazy and demeaning policy.
The Conservatives belatedly proposed, at the General Election, that they would solve this problem through their Triple Lock Plus, which would have increased the personal allowance for pensioners by the Triple Lock percentage each year. Silver Voices asked Labour to match this pledge, but the request was ignored.
So, Labour now faces a problem of its own making, but it is easy to resolve. We propose that ￡1000 is added to the personal allowance for all pensioners, and that the allowance is then uprated in line with the Triple Lock each year.
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