Hundreds of thousands more state pensioners will lose money because of a controversial rule kept in place by Chancellor Rachel Reeves. Experts claim in some cases it will essentially cancel out annual triple lock increases.
The issue is caused by frozen tax bands, which have been kept at the same level since 2021. The state pension has risen by thousands of pounds over that time under triple lock rules, dragging more over-65s into income tax territory.
While those who only receive the state pension do not currently have to pay, it only takes a modest private pension or small amount of interest from savings to pass the £12,570 threshold. The triple lock ensures the state pension increases each year to match whatever is highest out of inflation, wage growth or 2.5%. But it is pushing more retirees past the income tax threshold.
This is known as fiscal drag, as the Government makes more in tax without having to formally announce increases. Critics have labelled it a stealth tax. An extra 600,000 pensioners are expected to have to pay income tax in 2026/27 because of this policy.
Chancellor Rachel Reeves has come under pressure over the frozen tax bands, which are expected to stay at the same level for the next five years. An Assistance for Seniors spokesperson said: "This is no longer a problem affecting only those with substantial pension pots. 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, said: "With the full new state pension rising to £11,973 in April, and personal allowance now frozen at £12,570 until 2031, more retirees are edging dangerously close to paying income tax on their state pension."
