Adam Pope, a retirement expert from Spencer Churchill Claims Advice, has issued a stark warning that nearly two million individuals over the State Pension age will feel the financial pinch of the Personal Allowance freeze within the next four years. The Department for Work and Pensions (DWP) latest figures show that there are almost 12.7 million people over the State Pension age in Great Britain, including over 1.1 million living in Scotland.
However, out of this total number, around 8.1 million (64%) currently pay tax in retirement, primarily due to additional income from workplace or private pensions on top of their State Pension. Spencer Churchill predicts that nearly 900,000 more individuals will exceed the Personal Allowance threshold of £12,570 during the current financial year, with an additional 2 million expected before the freeze ends in 2028.
It’s important to highlight that older individuals whose only income this year is the State Pension will not be taxed, and anyone with extra income who does not directly pay HM Revenue and Customs (HMRC) through earnings, will not receive a tax bill until June or July 2025, which must be paid by the end of January 2026.
The full New State Pension is pegged at a weekly £221.20, resulting in a pay packet of £884.80 every four weeks. Throughout the 2024/25 fiscal period, pensioners will see a rise in annual income by £902, as their funds swell from £10,600 to £11,502 from State Pension alone.
However, pensioners need to be wary of potential tax implications, as their income could overshoot the personal tax threshold, potentially triggering unexpected tax bills. Those receiving the full Basic State Pension will pocket £169.50 each week or £678 every four rotation, culminating in an increased yearly total of £8,814 an uptick of £692 that allows for a breathing space of £3,756 under the tax threshold, according to The Daily Record.
Commenting on the dilemma facing retirees, Adam Pope pointed out: “Freezing income tax thresholds for pensioners is worrying and could really affect their financial situation. Almost two million pensioners are expected to be hit by this in the next four years, meaning many of them will have to pay more tax.”
Highlighting the additional burden, Pope continued: “This is especially tough for those mainly living off the State Pension. With no change in the tax thresholds, they could find themselves owing more tax than they expected, making things hard if they don’t have much to begin with.”
Pope concluded by underscoring the hardship confronted by an increasing number of elderly taxpayers, asserting: “As the State Pension amount goes up, more pensioners could have to pay more tax, making life harder for those already struggling. Over 60 per cent of pensioners are paying income tax, up from about 50 per cent in 2010.”
Adam expressed his concern about the consequences of freezing income tax thresholds, warning, “What’s more, keeping income tax thresholds the same could mean pensioners have less money to spend. By 2027/28, the average tax-paying pensioner could be £1,000 worse off which could really affect their living standards and financial safety.”
He pointed out that although previous Tory-led reductions in National Insurance have benefitted workers, pensioners who do not pay this tax seem to have been overlooked. Adam stressed the consideration for the elderly in policy-making, asserting: “It’s important for those making policies to think about the needs of pensioners too, especially those who can’t earn more money.”
He further insisted on the need for reassessing the impact of tax policies on retirees, underlining: “Given all this, it’s clear that we need to look again at how income tax policies affect pensioners and find ways to protect their money. Listening to what pension experts and groups fighting for pensioners say is key to making sure the tax system is fair for everyone, including those living on a fixed income.”
