Hundreds of thousands of state pensioners will lose money this year under controversial rules implemented by Rachel Reeves. Over half a million retirees face being hit by the rule over the next 12 months, as frozen tax bands mean more over-65s will be dragged into paying income tax.
Critics Slam Unfair Threshold
Critics argue that the frozen threshold is unfair and, in some cases, essentially cancels out annual triple lock increases. Freezing tax bands results in more people passing the tax threshold as their incomes rise each year. The triple lock ensures the state pension increases every 12 months, but this pushes more retirees past the income tax threshold.
While those who only receive the state pension currently do not have to pay tax, it only takes a modest private pension or small savings interest to exceed the £12,570 threshold. This phenomenon, known as fiscal drag, allows the government to collect more tax without formally announcing increases, but critics call it taxing by the back door.
Impact on Pensioners
An extra 600,000 pensioners are expected to have to pay income tax in 2026/27 because of this policy, and tax bands are expected to remain frozen for the next five years. An Assistance for Seniors spokesperson stated: "We are fast approaching a point where simply receiving the full state pension, alongside even a modest amount of savings interest, is enough to trigger a tax bill."
Derence Lee, chief finance officer at Shepherds Friendly, added: "With the full new state pension rising to £11,973 in April, and the personal allowance now frozen at £12,570 until 2031, more retirees are edging dangerously close to paying income tax on their state pension."
