State pension warning as 'retirement tax' leaves thousands of Britons facing financial 'cliff-edge'
Hundreds of thousands of pensioners will be pushed into paying income tax from today as the state pension rises to £11,973.An estimated 650,000 retirees will cross the frozen income tax threshold of £12,570 in 2025/26 due to the increase, according to new analysis.The 4.1 per cent rise has been described as creating a "retirement tax" for millions.The increase is guaranteed by the "triple lock" system, which ensures pensions rise by inflation, wage growth or 2.5 per cent, depending on which is highest.This latest rise will add to the 2.6 million pensioners already above the "personal allowance" limit.Those with additional income from private pensions will face 20 per cent tax once they reach the threshold.Income tax thresholds have been frozen since 2021, initially by the previous Conservative Government.Chancellor Rachel Reeves has committed to maintaining this freeze until at least 2027/28.MORE LIKE THIS:Rachel Reeves unveils tougher tax rates for petrol, diesel and electric car owners from todayDavid Starkey issues serious tax warning over Rachel Reeves' plan for workersReeves hit with court action as care homes 'pushed to the brink' ahead of Labour's latest tax 'blunder'The extended freeze, combined with pension increases, is pushing "millions of pensioners into the tax net for the first time since they retired".Sir Steve Webb, former pensions minister and now partner at LCP pensions consultancy, conducted the analysis."The combined increases [of the state pension] in April 2023, 2024 and 2025 amount to a rise of nearly a quarter in the state pension while the tax threshold has remained frozen," Webb told The Telegraph."As a result, a large number of pensioners are now income tax payers."The perceived unfairness of the system has sparked a campaign calling for the personal allowance limit to be raised to £20,000.A petition on the issue has gathered over 200,000 signatures. Parliament is scheduled to debate the petition on May 12.Jon Greer, head of retirement policy at Quilter, warned that increases to the state pension meant "millions of pensioners are now teetering on the edge of a tax cliff".He noted that with the OBR forecasting a 4.6 per cent triple lock increase in April 2026, retirees would have "barely any headroom before becoming liable for income tax".Former Prime Minister Rishi Sunak labelled the phenomenon "Labour's retirement tax" during his unsuccessful general election campaign.He also told voters that the Conservatives would avoid the issue through a 'Triple Lock Plus' scheme.A Treasury spokesman defended the Government's position, saying: "We are committed to help our pensioners live their lives with dignity and respect."He also highlighted measures including frozen fuel duty and increased state pension "to leave pensioner couples up to £88 better off a month". The spokesman added that the triple lock commitment means "millions will see their pension rise by up to £1,900 this Parliament".
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Hundreds of thousands of pensioners will be pushed into paying income tax from today as the state pension rises to £11,973.
An estimated 650,000 retirees will cross the frozen income tax threshold of £12,570 in 2025/26 due to the increase, according to new analysis.
The 4.1 per cent rise has been described as creating a "retirement tax" for millions.
The increase is guaranteed by the "triple lock" system, which ensures pensions rise by inflation, wage growth or 2.5 per cent, depending on which is highest.
This latest rise will add to the 2.6 million pensioners already above the "personal allowance" limit.
Those with additional income from private pensions will face 20 per cent tax once they reach the threshold.
Income tax thresholds have been frozen since 2021, initially by the previous Conservative Government.
Chancellor Rachel Reeves has committed to maintaining this freeze until at least 2027/28.
MORE LIKE THIS:
- Rachel Reeves unveils tougher tax rates for petrol, diesel and electric car owners from today
- David Starkey issues serious tax warning over Rachel Reeves' plan for workers
- Reeves hit with court action as care homes 'pushed to the brink' ahead of Labour's latest tax 'blunder'
The extended freeze, combined with pension increases, is pushing "millions of pensioners into the tax net for the first time since they retired".
Sir Steve Webb, former pensions minister and now partner at LCP pensions consultancy, conducted the analysis.
"The combined increases [of the state pension] in April 2023, 2024 and 2025 amount to a rise of nearly a quarter in the state pension while the tax threshold has remained frozen," Webb told The Telegraph.
"As a result, a large number of pensioners are now income tax payers."
The perceived unfairness of the system has sparked a campaign calling for the personal allowance limit to be raised to £20,000.
A petition on the issue has gathered over 200,000 signatures. Parliament is scheduled to debate the petition on May 12.
Jon Greer, head of retirement policy at Quilter, warned that increases to the state pension meant "millions of pensioners are now teetering on the edge of a tax cliff".
He noted that with the OBR forecasting a 4.6 per cent triple lock increase in April 2026, retirees would have "barely any headroom before becoming liable for income tax".
Former Prime Minister Rishi Sunak labelled the phenomenon "Labour's retirement tax" during his unsuccessful general election campaign.
He also told voters that the Conservatives would avoid the issue through a 'Triple Lock Plus' scheme.
A Treasury spokesman defended the Government's position, saying: "We are committed to help our pensioners live their lives with dignity and respect."
He also highlighted measures including frozen fuel duty and increased state pension "to leave pensioner couples up to £88 better off a month".
The spokesman added that the triple lock commitment means "millions will see their pension rise by up to £1,900 this Parliament".
