UK pensioners are at risk of falling into a tax “nightmare” without serious action from MPs, according to one of the country’s leading retirement campaigners.
Baroness Ros Altmann is urging the main political parties, particularly the Labor Party, to reform existing tax rules so that older Britons do not lose part of their state pension to HM Revenue and Customs (HMRC).
“Serious concerns” are growing about the rising tax burden on pensioners following the government’s decision to freeze tax thresholds. Currently, every Briton has a Personal Savings Allowance of £12,750, which is the amount someone can earn without paying tax.
Chancellor Jeremy Hunt had previously pledged to keep allowances frozen until 2028, but this has led to more taxpayers being pushed into higher bands. This is known as the fiscal drag, where people pay higher taxes because thresholds remain frozen while incomes rise.
This also affected pensioners, whose payments are guaranteed to increase thanks to the triple lock. State pensions rise every year thanks to this metric, which shows payments rise either by the rate of inflation, average earnings or by 2.5 per cent; whichever is higher.
In April, the full new state pension jumped to £11,502.40 for the 2024-25 tax year, up from £10,600.20. While this falls short of the personal savings allowance, retirees are sleeping through a tax “nightmare”, experts say.
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Speaking exclusively to GB News, Baroness Altman broke down the unique challenges that arise when more older people have to pay more tax.
She explained: “I think it’s vital that pensioners know they won’t face any new tax on their pensions and won’t have to face the nightmare of filling in tax forms, with the risk of fines and penalties if they don’t.
“Most pensioners have never filled in a tax return in their life, they took care of PAYE at work.
“Labour has made no commitment that pensioners living on the full new state pension alone will be able to rely on tax-free income as they have always done until now. This could be a serious concern in future years if the tax threshold is raised”.
Ahead of the July 4 general election, the Conservative Party has promised to introduce a “triple plus lock” in a bid to win over voters. If introduced, the tax-free pension contribution would increase each year in line with the triple lock.
Older households would thus likely permanently avoid paying taxes only on the state pension. It should be noted that retirees often pay taxes thanks to the accumulated additional income from private retirement savings.
The latest figures from HMRC suggest around 8.5 million pensioners were required to pay tax last year at a time when the burden on the country is the highest since the Second World War.
After an 8.5 per cent tripling of the state pension earlier this year, experts believe the number of elderly taxpayers will exceed nine million, effectively double the number in 2010.
Baroness Altman added: “I am happy if there is to be a proper review of all aspects of pensions going forward, but it needs to be cross-party and probably independent rather than political.
“The worst problems for pensioners often arise from political point-scoring rather than long-term policy thinking. Pensions should not be a political football, our millions of pensioners should be able to rely on a fair and stable framework.”
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Sir Keir Starmer’s party is not committed to increasing the tax-free pension allowance
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As part of its manifesto, Labor promised to keep the state pension triple lock but stopped short of committing to the Tories’ proposed “triple lock plus”.
Following the Tory policy news, 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 it through.”
Jonathan Ashworth, the Shadow Paymaster General, has suggested that Labor is unlikely to introduce a “triple plus lock” if the party returns to power.
He claimed it was “just another desperate move from a chaotic Tory party that has torched any remaining facade of its claims to economic credibility”.