A significant public campaign is urging the government to create a new tax code specifically for state pensioners, which would effectively double their personal allowance. The proposal, detailed on the Labour Party's parliamentary petition site, has already garnered substantial support, raising the prospect of a future debate in the House of Commons.
Petition Details and Government Response
The petition explicitly calls for the "introduction of a new tax code for state pensioners with double the personal allowance." It argues that individuals with modest private or workplace pensions are being taxed unfairly under the current system. The campaigners state: "We want the government to introduce a new tax code for state pensioners, set at double the basic threshold. If this was implemented, pensioners would receive a higher tax-exempt limit, but wealthier pensioners would still pay tax."
To date, the petition has been signed by over 25,000 people. It requires 100,000 signatures to be considered for a debate in Parliament. However, the government is obliged to respond to all petitions that receive more than 10,000 signatures, meaning an official reply is expected.
The Impact of Frozen Tax Thresholds
This call for reform comes against the backdrop of the government's decision, confirmed by Chancellor Rachel Reeves in the Autumn Statement, to keep the personal allowance and income tax thresholds frozen at their current levels. This freeze continues despite previous ministerial indications it would be lifted from April 2028.
The freeze has a direct and growing impact on pensioners. The new state pension is set to rise to £241.30 a week in April 2025, translating to an annual income of £12,547. This figure is perilously close to the current personal tax allowance of £12,570 a year. Calculations show that with a mere 2.5% rise, the state pension will exceed the allowance by April 2027, leaving those reliant solely on it with a tax bill. Specifically, they could face tax on around £292 of their income, resulting in a bill of approximately £58.
Prospect of a Two-Tier Retirement System
Chancellor Reeves has confirmed that individuals whose sole income is the basic or new state pension will not have to pay tax on it. This pledge, aimed at easing administrative burdens, simultaneously creates the potential for a two-tier system for retirees. On one tier would be those living only on the state pension, shielded from income tax. On the other would be pensioners with even a small amount of additional private pension income, who could be dragged into the tax net as the state pension value inches above the frozen allowance.
The government's budget document included a commitment to “ease the administrative burden for pensioners whose sole income is the basic or new state pension.” The current petition pushes this principle further, seeking formal recognition through the tax code to protect a broader group of pensioners from what campaigners deem an unfair fiscal squeeze.
