State Pension warning as date Labour's new 'retirement tax' will hit pensioners revealed
Millions more pensioners will be dragged into the tax net after Labour pledged to maintain the freeze on the amount at which people start paying.
Labour's "retirement tax" is set to hit millions of pensioners within two years, an analysis has revealed. Sir Keir Starmer's party vowed to maintain the freeze on the amount at which people start paying tax at £12,570 until 2027-28.
Wage growth is expected to push the state pension up from its current level of £11,502.40 to the personal allowance by April 2026.
This will drag millions more pensioners into the tax net after the freeze helped push 2.5 million pensioners into the same trap over the last 14 years.
Labour pledged in the General Election to maintain the freeze and maintain the triple lock, which sees the state pension rise annually by inflation, average earnings or 2.5 percent, whichever is the highest.
An analysis published by the Telegraph assumes wage growth will be the highest out of the 2.5 percent and the current two percent inflation rate.
Average wage growth reached 5.7 percent between March and May, according to the latest figures from the Office of National Statistics.
A 5.7 per cent increase would raise the state pension to £12,158 from April 2025 while Threadneedle Street forecasts 2.75 percent average earnings growth next year.
That would increase the state pension to £12,492 by April 2026, only £78 below the threshold.
Former Pensions Minister, Steve Webb, who is now a partner at LCP, told the Telegraph the prospect of more state pensioners being dragged into the tax net showed the current situation was a "mess".
He said: "If all you’ve got is the state pension then you don’t have to fill in a tax return – instead you’ll get an HMRC bill in the post if you owe tax.
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"However, it does seem bizarre for the Government to pay the state pension with one hand and then collect very small amounts of tax with the other – the bureaucracy and hassle for citizens make it pointless."
Mr Webb said the new Government should say if a pensioner only receives a regular state pension then they should not have to pay tax on it.
An HM Treasury spokesperson said: "Older people should be able to live with the dignity and respect they deserve, and the state pension is the foundation for this.
"We are committed to the triple lock, and pensioners whose sole income is the new state pension and who have not deferred or received protected payments do not pay any income tax."
