State pensioners who have no other income will not have to pay tax, new Government pledges – are you included?

STATE pensioners who don’t receive any other income will not need to pay tax, the new Government has confirmed. Andy Burnham and new Chancellor John Healey made the commitment after making tackling the cost of living crisis a key priority. From next year, the state pension will be dragged into taxation for the first time. The personal allowance means you can earn up to £12,570 a year without being taxed on your income. Sign up for the Money newsletter Thank you! The current rate of the new state pension is £241.30 a week, or £12,547.60 per year, only just below the level of taxation. Under the triple lock policy, the state pension rises each April based on the level of inflation, wage growth or 2.5% – whichever is highest. That means the state pension will exceed the personal allowance next year, even if it only rises by 2.5%. With economists expecting inflation to peak at around 3.4% in November, and the triple lock policy based on September’s inflation figures, the state pension could easily rise even higher than 2.5%. Only a relatively small amount of tax is likely to be due for pensioners relying on the state pension. But even small amounts can make a difference to older people living on a relatively low income. Most read in Money Experts previously estimated around 820,000 retirees would owe income tax on their state pension alone in 2027-28. The Treasury has now said Mr Healey will stick to a commitment made by previous chancellor Rachel Reeves that income tax will not be charged on people who only receive the state pension. Ms Reeves pledged in last year’s Budget that “people only in receipt of the basic or new state pension do not have to pay small amounts of tax through Simple Assessment from April 2027”. A Treasury spokesperson said: “Anyone whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that over this Parliament. “By keeping the triple lock, 12million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7.” Still, pensioners who have a second form of retirement income, such as a private pension, will be dragged into paying higher levels of income tax. The personal allowance has remained at the same level since 2021. This means that as incomes have risen over the last five years, people have more earnings that can be taxed. The process is frequently referred to as a “stealth tax” because although the Government has not implemented a new tax-raising policy, it still results in people paying more tax. It’s not yet clear how the exemption for some pensioners will work. However it could raise concerns about fairness, as some pensioners have only small amounts of additional income from savings or private pensions. That means two people on similar incomes could end up paying very different levels of tax. Plus, those on the old state pension receive significantly less than newer pensioners, at roughly £9,615. This is well below the personal allowance threshold so these pensioners would not qualify for a tax exemption. But many of them will have private pension pots which could bring their total income in line with newer pensioners just on the state pension – and which could leave them paying tax unfairly. Meanwhile, a major shake-up to the pension system is looming. The Government is considering bringing forward plans to increase the state pension age to 68. It was originally set to increase to this level between 2044 and 2046. But this could now be brought forward to between 2037 and 2039 – seven years earlier. The change would mean that around five million people aged between 49 and 55 would be forced to wait another year before they can claim their state pension. Comment now