New State Pension Holders to Avoid Paying Tax, Chancellor Reveals
Under a proposed plan by Chancellor Rachel Reeves, individuals reliant solely on their state pension income will not have to pay tax on it. The move has sparked concerns over the potential for a two-tier system in retirement, where those with private pensions may be forced to pay taxes on their earnings.
As of April next year, the standard state pension payment is set to increase to £241.30 per week, resulting in an annual income of £12,547 – close to but below the personal tax allowance threshold of £12,570. This means that if the state pension rises by just 2.5% from April 2027, it will exceed the threshold and recipients will be required to pay tax on their earnings.
However, Reeves has stated that those relying solely on the basic or new state pension – without receiving any additional uplifts – will not have to pay tax on their payments once the policy comes into effect. According to a Treasury spokesperson, this means they won't have to submit simple assessments from 2027-28 if their pension exceeds the personal allowance.
Critics, including former pensions minister Steve Webb, argue that this proposal raises questions of fairness. Webb points out that 2.5 million pensioners on the old state pension already pay tax on what they receive and wonders how these individuals will be treated under the new system. He suggests that those with small private pensions – who would not benefit from the exemption – may be penalized compared to those without private pensions.
The proposed policy is also seen as unfair by Webb, who argues that it disproportionately benefits those relying solely on the state pension while neglecting those who have saved modest amounts through private pensions. The lack of costing in the budget documents has sparked concerns that this idea remains at the conceptual stage, making it difficult to implement a fair and workable system.
Reeves' commitment to easing administrative burdens for pensioners may be seen as a positive step, but critics are wary of the implications of creating a two-tier system. As one expert notes, it will be "incredibly difficult" for the Treasury to come up with a solution that is both fair and workable.
Under a proposed plan by Chancellor Rachel Reeves, individuals reliant solely on their state pension income will not have to pay tax on it. The move has sparked concerns over the potential for a two-tier system in retirement, where those with private pensions may be forced to pay taxes on their earnings.
As of April next year, the standard state pension payment is set to increase to £241.30 per week, resulting in an annual income of £12,547 – close to but below the personal tax allowance threshold of £12,570. This means that if the state pension rises by just 2.5% from April 2027, it will exceed the threshold and recipients will be required to pay tax on their earnings.
However, Reeves has stated that those relying solely on the basic or new state pension – without receiving any additional uplifts – will not have to pay tax on their payments once the policy comes into effect. According to a Treasury spokesperson, this means they won't have to submit simple assessments from 2027-28 if their pension exceeds the personal allowance.
Critics, including former pensions minister Steve Webb, argue that this proposal raises questions of fairness. Webb points out that 2.5 million pensioners on the old state pension already pay tax on what they receive and wonders how these individuals will be treated under the new system. He suggests that those with small private pensions – who would not benefit from the exemption – may be penalized compared to those without private pensions.
The proposed policy is also seen as unfair by Webb, who argues that it disproportionately benefits those relying solely on the state pension while neglecting those who have saved modest amounts through private pensions. The lack of costing in the budget documents has sparked concerns that this idea remains at the conceptual stage, making it difficult to implement a fair and workable system.
Reeves' commitment to easing administrative burdens for pensioners may be seen as a positive step, but critics are wary of the implications of creating a two-tier system. As one expert notes, it will be "incredibly difficult" for the Treasury to come up with a solution that is both fair and workable.
I mean what about all those people who have worked hard their whole lives and now are gonna be stuck in this two-tier system? If they've got a private pension, they're expected to pay tax on it but the state pension guys get off scot-free?! 
It's not fair that some people will have to deal with more admin than others just because of how much their pension is. And what about those who are caught in the middle? Like Steve Webb said, this policy raises so many questions about fairness and it's all being swept under the rug. I don't think it's a good idea at all... 
... think its gonna create more problems than its solvein. if ppl rely solely on state pension, whats wrong w/ payin tax? its not like they got somethin to flaunt 
. and what bout those w/ private pensions? why shouldnt they pay taxes too? seems like this new rule is just gonna make 2 tiers: those who got state pension & dont pay tax vs those who got private pensions & gotta cough up 
I think this is a recipe for disaster 
. If you're lucky enough to rely solely on your state pension, why should you pay tax? It's not like it's easy to make ends meet on £12,547 a year 
. And what about those with private pensions who might be struggling to make ends meet? They'll be the ones penalized if they don't have a big enough pension 
. We should be focusing on helping all retirees, not creating more inequalities 
like they worked hard in their life but now they dont wanna see them gettin some cash back 
. I think we should be looking at ways to make sure everyone has access to decent pension options, regardless of whether they're state-funded or private 
.