State pensioners face tax 'nightmare' without retirement reform: 'Serious concern in future years!'
Older households could face paying tax on their state pension with reform to current rules
GETTY
Pensioners in the UK are at risk of falling into a tax "nightmare" without serious intervention from MPs, according to one of the country's leading retirement campaigners.
Baroness Ros Altmann is urging the major political parties, particularly the Labour Party, to reform existing rules surrounding tax to prevent older Britons losing part of their state pension to HM Revenue and Customs (HMRC).
There is a growing "serious concern" over the increasing tax burden on pensioners following the Government's decision to freeze tax thresholds. As it stands, every Briton has a personal savings allowance of £12,750 which is the amount of income someone can make without paying tax.
Chancellor Jeremy Hunt has previously pledged to keep allowances frozen until 2028 but this has resulted in more taxpayers being pulled into higher brackets. This is known as fiscal drag, when people pay more tax due to thresholds remaining frozen at a time when incomes are rising.
This has also impacted pensioners who are guaranteed to see their payments rise thanks to the triple lock. State pensions rise annually thanks to this metric which sees payments go up by either the rate of inflation, average earnings or 2.5 per cent; whichever is higher.
In April, the full new state pension jumped to11,502.40 for the 2024-25 tax year, up from £10,600.20. While this falls short of the personal savings allowance, pensioners are sleeping walking into a tax "nightmare", experts claim.
Do you have a money story you’d like to share? Get in touch by emailing money@gbnews.uk.
Pensioners face being taxed on the state pension as it increases by the triple lock but the personal allowance remains frozen GETTYSpeaking exclusively to GB News, Baroness Altman broke down the unique issues that arise when more older people find themselves liable to pay more tax.
She explained: "I think that it is vital that pensioners know they will not face any new taxes on their pensions and will not have to face the nightmare of trying to fill in self-assessment tax forms, with the risk they will face fines and penalties if they fail to do so.
"Most pensioners have never filled in a tax return in their lives, having had their PAYE taken care of at work.
"Labour has not pledged that those pensioners living on no more than the full new state pension, will be able to rely on tax-free income, as has always been the case until now. This could prove a serious concern in future years, unless the tax threshold is increased."
Ahead of the General Election on July 4, the Conservative Party has promised to introduce the "triple lock plus" in an attempt to win over voters. If implemented, this would see the tax-free allowance on pensions rise every year in line with the triple lock.
As such, older households would likely permanently avoid paying tax on their state pension alone. It should be noted that pensioners often pay tax thanks to have accumulated additional income from private retirement savings.
The latest figures from HMRC suggest that around 8.5 million pensioners were liable for tax last year at time when the country's burden is at its highest since World War II.
Following the 8.5 per cent state pension triple lock rise earlier this year, experts believe the numbers of older taxpayers will cross nine million, effectively double the figure in 2010.
Baroness Altman added: "I am happy if there is to be a proper review of all aspects of pensions for the future, but this needs to be cross party and probably independent, rather than political.
"The worst problems for pensioners have often arisen from political point-scoring, rather than considered long-term policy thinking. Pensions should not be a political football, our millions of pensioners should be able to rely on a fair and settled framework."
LATEST DEVELOPMENTS:
Sir Keir Starmer's party is not committing to raise the tax-free allowance for pensions
PAAs part of its manifesto, Labour promised to maintain the triple lock on state pensions but stopped short of committing to implementing the Tories' proposed "triple lock plus".
Following the news of the Conservative policy, Shadow Business Secretary Jonathan Reynolds told the BBC: "I don’t think it’s credible, I don’t think it’s real, and I think pensioners will completely see through this.”
Jonathan Ashworth, the Shadow Paymaster General, has signaled Labour will likely not be introducing the "triple lock plus" if the party returns to power.
He claimed it was "just another desperate move from a chaotic Tory party torching any remaining facade of its claims to economic credibility."