Adam Pope, a retirement expert from Spencer Churchill Claims Advice, has issued a warning that nearly two million individuals over the State Pension age will experience the financial effects of the Personal Allowance freeze within the next four years. The Department for Work and Pensions (DWP) latest statistics reveal that there are almost 12.7 million people over the State Pension age in Great Britain, including over 1.1 million residing in Scotland.
However, out of this total number, approximately 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 anticipates that nearly 900,000 more individuals will surpass the Personal Allowance threshold of £12,570 during the current financial year, with an additional 2 million expected before the freeze concludes in 2028.
It’s crucial to note 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 settled by the end of January 2026.
The full New State Pension is valued at £221.20 per week and since payments are typically made every four weeks, this equates to £884.80 each pay period. Over the 2024/25 financial year, this represents an increase of £902, raising the annual income from State Pension alone from £10,600 to £11,502.
In light of the personal tax threshold, pensioners could end up with unexpected tax bills if their income exceeds certain levels. With the full rate of Basic State Pension amounting to £169.50 weekly or £678 every four weeks, the annual total for 2024/25 will rise by £692 to £8,814, leaving a margin of £3,756 before reaching the tax threshold, equating to extra monthly income of £313, reports the Daily Record.
Adam Pope remarked: “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.”
He further emphasised the strain on pensioners: “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 added: “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.”
Concerns were raised by Adam over the implications of freezing income tax thresholds, saying, “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.”
Adam highlighted that despite previous Conservative government reductions in National Insurance contributions for workers, retired individuals who are exempt from this levy are seemingly ignored.
In addition, he mentioned: “It’s important for those making policies to think about the needs of pensioners too, especially those who can’t earn more money.”
Furthermore, Adam emphasised the necessity of re-evaluating tax policy effects on retirees, stressing, “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.”
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