State pension payments should be made "exempt" from paying tax to HM Revenue & Customs (HMRC), according to campaigners. A new petition is urging the Labour Government to protect pensioners from losing part of their retirement benefit to the tax man..
As it stands, the call for reform has more than 9,000 signatures on the official petitions website and needs 10,000 to get a response from the Government. The petition states: "We want the government to make the state pension tax exempt and not impact the tax threshold. We think it is wrong to tax the state pension."
Once the petition , which was created by David Bresnahan, receives 100,000 signatures, the issue will be considered for a debate among MPs in Parliament. Those who want to sign their name to the appeal have until the August 7, 2025 deadline to do so.
Concerns over state pension payments alone being subject to tax have risen in recent years due to the impact of fiscal drag and the triple lock. Since April 2021, tax allowances have been frozen, including the personal savings allowance which is currently £12,570.
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|State pension should be 'exempt from tax', according to a new petition
Once someone's income crosses over this threshold, they are liable to pay tax. This is commonly referred to as fiscal drag with the current freeze on tax allowances is expected to continue until April 2028.
However, analysts are expecting this to be extended in Chancellor Rachel Reeves's upcoming Autumn Budget. Furthermore, retirement experts are sounding the alarm that the state pension is likely to come under fire from fiscal drag.
Thanks to the triple lock, state pension payment rates are guaranteed to increase every year by the one of three metrics: inflation, average earnings or 2.5 per cent; whichever is highest
While this is a boon for pensioner incomes, fiscal drag means the state pension is likely to cross the personal savings allowance threshold and make payments alone liable to be taxed.
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GETTY | Older Britons could be taxed on their state pension alone
As it stands, the full new state pension for the 2025/26 tax year comes to £11,973 per year, which is equivalent to £230.25 every week. Under the triple lock, payments could cross the £12,570 threshold by April 2027.
Derence Lee, the chief finance officer at Shepherds Friendly, previously warned older Britons that their tax obligations could be expanded in the near future if current Government policy remains the same.
Lee explained: "Due to the extremely high levels of inflation the UK has experienced since 2020, state pensions have been increasing at a rate that some experts believe to be unsustainable in the long term.
"With pensions expected to surpass the frozen tax-free allowance limit next year, which will remain unchanged by the government until 2028, more retirees will be pushed into the tax-paying bracket.
"As a result, pensioners should begin to take into account that they may soon need to pay income tax on their pensions should no changes be made to current status-quo.
"While the triple lock has been helpful in ensuring retirees’ incomes keep up with the cost of living, taxing pensioners could have significant financial implications, particularly for those who rely heavily on their pensions to cover essential living costs and make ends meet."
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GETTY | Politicians are being called on to address the fiscal difficulties surrounding the state pension
Jon Greer, the head of retirement policy at Quilter, has called on all UK political parties to come together and address the difficult fiscal decisions surrounding the state pension.
He said: "A renewed uprating mechanism would help align pension increases with the economic prosperity of the country, ensuring that pensioners’ incomes grow appropriately alongside uplifts received by the working population.
"In such a mechanism, there may need to be an allowance for circumstances where inflation is relatively high. For example, this could mean that if wage growth lags behind inflation, the state pension will increase in line with prices until real earnings recover.
"Once they have, the State Pension could then revert back to its benchmark proportion of average earnings. This would ensure pensioners share in the proceeds of economic growth, while protecting their income against inflation and ensuring intergenerational fairness by making the State Pension more sustainable."