The Department for Work and Pensions (DWP) has issued a statement following reports that the Treasury is considering deducting income tax from state pension payments before they are paid out. The proposed change would see the DWP automatically deduct income tax from pension payments, similar to how employers deduct tax from wages under the PAYE system.
DWP Responds to Speculation
In response to the speculation on Friday, June 26, a DWP and Labour Party government spokesperson said: "There has been no change to the tax treatment of the state pension. The Government routinely undertakes research to better understand pensioners' experiences with the tax system."
The statement comes amid reports that the Treasury is concerned about increased tax avoidance by the elderly, as the state pension is expected to rise above the tax-free Personal Allowance threshold of £12,570 as soon as next year. Under the plans, the basic 20% income tax rate could be applied to pension payments that exceed this threshold.
Political Context
The potential policy change is set against a backdrop of political uncertainty. Chancellor Rachel Reeves is reportedly likely to be replaced by Ed Miliband if Andy Burnham becomes Prime Minister. The decision on whether to proceed with the tax deduction plan is expected to rest with Burnham.
Reeves has publicly backed Burnham for the top job. In an interview with the BBC, she said: "I'm supporting Andy to be prime minister. I think he'd be a great prime minister, but those are his decisions, not mine to make." She did not rule out accepting a more junior cabinet position under Burnham.
No Final Decision Yet
According to The Telegraph, no final decisions have been made about implementing the policy. The shake-up would aim to address the rising cost of the state pension and ensure that pensioners pay their fair share of tax. However, the DWP has stressed that there has been no change to the current tax treatment of the state pension.
