A recent government commitment not to tax the state pension until 2030 is drawing attention, raising questions about its implications for different groups. Chancellor Rachel Reeves indicated in her Budget speech that individuals relying solely on the state pension will not be subject to income tax during this period. The state pension is projected to surpass the income tax threshold of £12,570 by April 2027.
Currently, most pensioners receive additional pension income, which means they are already paying taxes. This proposed policy could complicate the tax system further. Those who are eligible for the new flat-rate state pension, available to individuals who reached state pension age after April 2016, will receive £12,547.60 next year, just below the income tax threshold.
The Chancellor emphasized that if this were the sole income source, administrative complexities would be minimized, as the tax would not be collected through the Simple Assessment process typically used by HM Revenue and Customs. She reassured that “in this Parliament, they won’t have to pay the tax.”
About 75% of pensioners are currently liable for income tax due to additional earnings beyond the state pension. This group includes approximately 2.5 million pensioners, including widows and widowers, whose pensions are calculated under the pre-2016 system and are taxed. Experts have raised concerns, noting that individuals with small private pensions might still incur taxes, whereas comparable earners actively working would be taxed while pensioners with the same income would not.
Critics point out the lack of clear costing for the policy in the Budget documents, suggesting it may not yet be a finalized plan. Some observers have noted that collecting small tax amounts from numerous pensioners could pose a challenge for the government, indicating a need for a streamlined approach. The effectiveness and fairness of the proposed system remain to be seen.
Source: https://www.bbc.com/news/articles/cev8ed9klz1o?at_medium=RSS&at_campaign=rss