Campaigners Urge for Increase in Personal Allowance for Pensioners
Advocates are calling on Rachel Reeves to raise the personal allowance by £1,000 for state pensioners, aiming to shield them from being subjected to income tax for the first time. If the state pension rises above £12,570 next April due to the triple lock—an outcome that seems likely—approximately 450,000 individuals could find themselves paying tax solely on their state pension.
The former pensions minister, Baroness Altmann, emphasized that the most straightforward solution to this issue would be to elevate the personal allowance for everyone by £1,000 starting next April, with subsequent adjustments made in line with the triple lock. In her statements to The i Paper, she expressed her hope that the government would acknowledge the pressing necessity to prevent millions of pensioners from being unexpectedly pushed into the tax net as a result of a higher state pension. “The simplest route would be to increase the threshold,” she stated.
Recent analysis from Deutsche Bank suggests that the new state pension could rise from £11,973 to £12,631 in April 2026, marking a significant increase of 5.5 percent. The current freeze on tax thresholds means this increase would surpass the £12,750 personal allowance, the threshold at which income tax becomes applicable for the first time. In the upcoming October budget, the Chancellor announced that she would unfreeze the tax thresholds in 2028/29, potentially dragging more pensioners into tax brackets before that time.
Facing the likelihood of needing to implement cuts or raise taxes in her spring statement in March to adhere to her fiscal guidelines, Reeves has vowed not to finance day-to-day expenditures through borrowing. However, a stagnating economy threatens to eliminate her financial flexibility.
Pensioners have enjoyed substantial increases in recent years under the triple lock, fueled by elevated interest rates and rising wages. The government is also facing mounting pressure from pension advocacy groups, particularly regarding the elimination of the winter fuel payment for all but the most vulnerable and its refusal to compensate the so-called Waspi women, who argue they were not adequately informed about changes to the state pension retirement age.
Caroline Abrahams, charity director at Age UK, remarked that the issue of state pensioners being subject to income tax is “only going to grow in prominence over the next few years.” She noted, “We agree that it makes no sense for the government to give with one hand and take away with the other. We believe that after years of freezes to personal tax allowances, the time has come to raise them for individuals of all ages. We continue to urge the government to ensure that older individuals whose only income derives from a full state pension do not automatically incur income tax.”
According to estimates from former pensions minister Sir Steve Webb, by 2032, around 10 million retirees are expected to be paying income tax, representing nearly 2 million more state pensioners than today.
- Dennis Reed, from the campaign group Silver Voices, asserted that the Chancellor should safeguard the “state pension safety net” by increasing the allowance in March’s spring spending review. He stated, “The Chancellor must take urgent action to prevent the basic state pension from being taxed starting in April 2026. We are advocating for an immediate increase of the lower tax threshold for anyone receiving the state pension by £1,000, and in future years to adjust it based on the triple lock to ensure these state pensioners aren’t taxed. This could lead to a crisis for the entire state pension system unless proactive measures are taken. The entire state benefit system acts as a safety net, which is compromised if the lower tax threshold isn’t raised in the coming years.”
The triple lock mechanism ensures that the state pension keeps pace with living costs, increasing each year by the highest of inflation, average wage growth, or 2.5 percent. Deutsche Bank forecasts that growth in average weekly earnings will reach 5.5 percent by July, surpassing projected inflation figures, which means they expect the triple lock to rise by the same amount in April 2026.
A basic-rate taxpayer relying solely on the full new state pension would incur just over £12 in income tax if the anticipated increase materializes. Should retirees be required to pay income tax on their state pension payments through simple assessment, they would not need to file a tax return, as the tax would be deducted at the source. Those receiving the basic state pension are less likely to be pushed into paying income tax on their state pension alone due to the smaller amount they receive.
Understanding State Pension Amounts
Individuals receiving the full new state pension will see their payments rise to £230.25 per week, or £11,973 annually, starting this April. These figures apply to those who reached state pension age—currently 66 for both men and women—after April 2016, and have the full 35 qualifying years of national insurance contributions (NICs). Conversely, the full basic state pension, which is available to those who reached state pension age before April 2016, will increase to £176.45 per week, or £9,175 per year.
Until then, retirees will continue to receive their state pension at the existing rate of £221.20 per week, amounting to £11,502.40 annually for those on the new state pension, and £169.50 per week, equating to £8,814 annually for those on the basic state pension.
Joanna Elson, chief executive of Independent Age, expressed concern, stating, “Many older individuals we support are apprehensive about the possibility of paying income tax on their state pension. There needs to be a consensus among all political parties regarding the adequate income necessary in later life to avoid poverty. Once this is established, plans must be implemented to ensure that every older person can receive this amount.”
Simon Francis, co-ordinator of the End Fuel Poverty Coalition, voiced support for increasing the allowance for pensioners, asserting, “In light of the winter fuel payment cuts, we need to ensure there is a comprehensive support program for older individuals struggling with living costs and at risk of being trapped in cold, damp homes before the next winter.”
Triple Lock-Plus Comparisons
Prime Minister Rishi Sunak had previously cautioned that Labour’s policies could lead to a “retirement tax” on state pensioners’ income, pledging in his party’s election manifesto to avoid such a situation through its “triple-lock plus” scheme. This initiative would see the personal allowance for pensioners increase by at least 2.5 percent or in line with the highest of earnings or inflation.
While Labour has committed to maintaining the triple lock throughout this parliamentary term until 2029, it has not adopted Sunak’s “triple-lock plus” policy. Tom Selby, director of public policy at AJ Bell, commented, “Keeping the personal allowance frozen while increasing the state pension through the triple-lock means the government essentially gives with one hand while taking away with the other. There are two potential remedies: raise the personal allowance or refrain from increasing the state pension. The former seems improbable in the short term due to the fiscal challenges confronting the Chancellor, while the latter would contradict the Prime Minister’s promise to uphold the triple-lock for the duration of this parliament.”
Jon Greer, head of retirement policy at Quilter, added, “We are approaching a situation where pensioners are effectively repaying a portion of their state pension in tax to HMRC due to frozen allowances. The political pressure to act could intensify, prompting Labour to take action. Pensioners have significantly benefited from the triple lock, which has undeniably contributed to elevating their living standards. Achieving a consensus on the appropriate level of the state pension and a fair mechanism for maintaining its value over time is crucial to prevent annual increases from becoming contentious political issues.”
Baroness Altmann warned that increasing taxes on pensioners undermines the protections afforded by state pension increases, stating, “It could essentially mean that the increase to state pensions is reduced by 20 percent for those crossing the threshold. Furthermore, it may also lead to means-tested pension credit recipients being taxed as well. It certainly creates a situation where those on a state pension slightly above the pension credit threshold will find themselves significantly worse off than those who qualify and receive thousands of pounds in additional tax-free benefits, rendering them considerably better off than a pensioner with modest savings and a slightly higher state pension.”
An HM Treasury spokesperson stated, “The state pension serves as the foundation to ensure pensioners can live with dignity and respect, and we are committed to protecting the triple lock, which will be worth approximately £1,700 more in 2029. Pensioners whose sole income comes from the new state pension and who have not deferred or received protected payments do not pay any income tax.”
