RUTH SUNDERLAND: The stealth tax on pensioners is shameful

See more This is Money on Google - save us as a Preferred Source Updated: 03:15 EDT, 7 September 2026 What passes for Left-wing thought on pensions is polluted by the assumption moneybags oldies are luxuriating in under-taxed wealth at the expense of the young.Based on the peddling of that myth, as I wrote here last week, pensioners are seen as a deserving target for new Chancellor John Healey in next month’s Budget.Anyone who seriously believes older Britons are not paying enough tax needs to go to Specsavers so they can read the figures.Steve Webb, a former pensions minister now working at consultancy firm LCP, lodged a Freedom of Information request and found one million pensioners will pay the highest rates of tax this year, up from just under 500,000 in 2021-22.Maybe better-off pensioners don’t elicit much sympathy even if they have worked and saved all their lives. But overall, some 9.6m Britons over pension age are taxpayers, compared with 6.7m a decade ago. Labour is not solely to blame.The culprit is ‘fiscal drag’ from the freeze on income tax allowances and thresholds, initially brought in by Rishi Sunak as Chancellor.This Big Freeze has continued and been extended first by Jeremy Hunt and then by Rachel Reeves.Often labelled a stealth tax because of its underhand nature – it does not alter the headline tax rates so is not instantly obvious – it has resulted in more tax for millions of us as incomes rise with inflation.Those affected pay more tax even if their purchasing power has not increased, so living standards fall. For less well-off pensioners, the effect threatens to be particularly pernicious. The Chancellor should put to bed any speculation over the tax-free lump sum Three million more people over 65 are now paying tax than in 2021-22, when the basic rate allowance was frozen at £12,570.This is due to a combination of an ageing population, the tax freeze and the triple lock. The latter means the state pension goes up by the highest of average earnings, consumer price inflation or 2.5 per cent.From next April, people who rely solely on the full new state pension face being pulled into the income tax net for the first time.Reeve promised help at her last Budget, but no more has been heard since. It strikes me as shameful to target people like these for tax.The freeze is set to continue until at least 2030-31, by which time the allowance would have risen by £4,870 to £17,440 if it had kept pace with inflation, according to the Institute for Fiscal Studies.An overstretched HMRC would struggle to cope with the admin of millions of anxious pensioners faced with small tax bills.Labour has already attacked pensions more than enough, including by pushing some savings into the inheritance tax net.Healey should nip in the bud damaging speculation that he will slash tax-free lump sums from pension pots.Rachel Reeves allowed this to run rampant, prompting people to pull money out against their best interests.There are some constructive options. Tax reliefs to pension schemes could be made conditional on investing a certain percentage in UK assets to back growth in Britain.Local authority retirement schemes that are over-funded could take a contribution holiday and invest the money in local needs such as social care or housing.And the big one: public sector pensions, a huge liability on the taxpayer, could be reformed. New employees could be offered defined contribution plans, like most in the private sector.Trying to bleed grannies and grandpas for tax is not a good look for Labour.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you