The number of Britons over retirement age paying tax on their state pension has increased significantly in the past year, according to new figures published by HM Revenue and Customs (HMRC).
Tax authority data shows that annual figures on the number of people paying income tax on their pension payments have risen by 660,000, from 7.85 million to 8.51 million.
More and more pensioners are finding themselves in higher tax brackets as a result of the budget slowdown, with benefits being frozen at a time when incomes are rising.
Chancellor of the Exchequer Jeremy Hunt has reiterated his intention to freeze current tax thresholds until at least 2028. However, the Labor Party has refused to commit to ending the freeze if it wins the general election next week.
Tax pressure is also called a ‘creeping tax’, where more and more people are losing their hard-earned money to the tax authorities as a result of the policy decision of the Ministry of Finance.
Last night (June 27), Prime Minister Rishi Sunak claimed that older Britons would face a ‘pension tax’ for the first time if Sir Keir Starmer’s party wins the keys to 10 Downing Street.
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Both young and older Britons are paying more taxes due to budget pressure
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However, Sunak’s claim that a future Labor government would ensure that “the state pension will be subject to a pension tax” has come under extensive scrutiny and has been found to be incorrect.
It is currently expected that from the 2027-28 tax year, pensioners will only pay tax on their state pension, as the benefit is expected to be higher than the personal savings allowance, which is currently set at £12,750.
Under the ‘triple lock’, which both Labour and the Conservative Parties have pledged to maintain, state pensions are guaranteed to rise annually in line with inflation, average earnings or 2.5 per cent, whichever is higher.
Hunt’s decision to freeze tax exemptions means more and more older households are moving into higher tax brackets, with lower income pensioners now facing losing money to HMRC as they are more likely to be solely dependent on the state pension.
Before voters go to the polls on July 6, the Tories have introduced a ‘triple lock plus’, which would ensure the tax-free allowance on pensions rises every year, in line with whatever the triple lock is.
However, analysis has suggested that pensioners will save just £28 per month in pension income if this policy is eventually introduced. Labour, which leads the polls and is expected to have a majority government, has not said it will maintain this policy.
Research by former pensions minister Sir Steve Webb shows that almost 2.5 million people will still pay tax on their state pension even if the ‘triple lock plus’ is introduced.
Webb explained: “These new figures from HMRC are very timely and help inform the debate about pensioners and tax.
‘They show that a combination of frozen tax thresholds and significant increases in state pensions has meant that the number of pensioners paying tax has continued to rise.
“But this is a continuation of a long-term trend that has seen the number of over-65s paying tax rise by around 4 million since 2010/11. For a pensioner in Britain, being an income tax payer is now the norm rather than the exception.”
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Retirees have had a hard time with the rise in the cost of living GETTY
Commenting on the new HMRC figures, economics commentator Chris Giles said: “The state pension has of course always been taxable… and in future that will be whoever wins the election.”
Voters have also taken to social media to express how they have been affected by this ‘hidden tax’ on pensions, with many denouncing the ‘lies’ of the country’s prime minister.
One social media user stated: “My dad pays tax on his state pension along with over a million others – so Sunak is a liar.”
Another added: “Sunak says this knowing that it only applies to people who live on the state pension and have no other sources of income. If you have a total income above the personal exemption, you are already paying tax as a pensioner. He is deliberately unfair.”
A government spokesman said: “Our ‘triple lock’ led to the biggest increase in the state pension in history last year.
“We are delivering a further 8.5 per cent increase in April, taking the basic pension to £3,700 higher than in 2010. This is significantly ahead of inflation, which is expected to fall below the two per cent target in the second quarter of this year,” the independent OBR said.
“We are also curbing inflation to make everyone’s money go further, increasing the pension benefit – an average of £3,900 a year for pensioners on the lowest incomes – and have made more than 11.9 million pension cost payments to help with essential costs this winter.”