More than half a million state pensioners across the UK could be dragged into paying income tax for the first time, according to new analysis of the upcoming Autumn Budget.
The Tax Threshold Freeze Explained
Chancellor Rachel Reeves is considering extending the freeze on income tax thresholds for an additional two years, a move that could have significant consequences for older people on fixed incomes. This policy, combined with rising state pension payments, is creating what experts call a 'fiscal drag' effect.
Modelling by Steve Webb, a partner at pensions consultants LCP and former Liberal Democrat pensions minister, reveals the scale of the potential impact. His analysis suggests that approximately 500,000 pensioners who currently don't pay income tax could start doing so if the freeze continues.
How the Triple Lock Affects Pension Values
The state pension is set to increase significantly due to the Triple Lock mechanism, which guarantees rises by the highest of three measures: inflation, wage growth, or 2.5%. Chancellor Reeves has confirmed that pensions will rise above the current inflation rate of 3.6%.
The full new state pension will increase from £230.25 per week to approximately £241.05 per week, representing a 4.7% boost aligned with earnings growth. This translates to an annual increase of around £561, taking the total yearly pension from £11,973 to about £12,534 for those receiving the full amount.
Charity Concerns and Political Response
Caroline Abrahams, director of Age UK, expressed strong concerns about the potential impact on pensioners with limited incomes. "As a matter of principle, we would oppose any measures that hit pensioners on low and modest incomes," she stated.
"A continued freezing of the personal allowance for income tax comes into that category," Abrahams explained. "With prices for essentials going up and up, older people in this position are already struggling to make ends meet: they need more support, not less."
The charity director highlighted the contradiction in government policy, noting: "It makes little sense for the state to give older people money in the form of their pension with one hand, only to take some of it away with the other."
Meanwhile, Chancellor Reeves has defended the government's approach to supporting pensioners, stating: "Whether it's our commitment to the triple lock or to rebuilding our NHS to cut waiting lists, we're supporting pensioners to give them the security in retirement they deserve."
The Autumn Budget announcement will reveal whether the tax threshold freeze will be extended, potentially affecting the financial security of hundreds of thousands of pensioners across the country.
