Fury at Rachel Reeves’ ‘two-tier taxation raid’ on hard working Brits’ pensions | Personal Finance | Finance
The Chancellor’s decision to freeze income tax thresholds for three years has been labeled “grossly unfair” to pensioners. Last week, Rachel Reeves announced in her budget that rates would be frozen, sending hundreds of thousands of pensioners into the income tax net between 2027-28.
The move could potentially extend to new state pension recipients if annual increases go above the personal allowance of £12,570. However, the Chancellor later announced that the policy would not only apply to old or new state pension recipients, leading to claims of a “two-tier” pension system. Conservative Party member and former MP Lord Mackinlay said: Telegram: “The most elegant solution would be to give every person in the country a personal right. [tax-free] Allowance reflecting the basic state pension. It would be easy and fair.
“But no, this Government has decided to introduce another two-tier taxation for those who have worked hard and are hard-working all their lives. People will ask, what’s the point of saving for a pension? Why did I bother?”
“This is where financial hardship gets in the way of reality for millions of taxpayers. The Labor Chancellor created this.”
Helen Morrissey, head of pensions analysis at Hargreaves Lansdown, described it as “grossly unfair” to those saving for pensions.
He said: “This will be seen as a great injustice for retirees whose income tax is deducted for contributing to a workplace or private pension.
“Some of these retirees may have slightly higher incomes and may rightfully be aggrieved.”
It remains unclear how freezing income tax thresholds will affect retirees; If the triple lock continues, some are likely to be dragged over the personal allowance threshold.
Martin Lewis told the audience on his show: Martin Lewis Money Show Live on ITV We were told this week that the move could turn into an administrative nightmare.
He said: “Since we know that from 2027 the state pension must increase by at least 2.5 per cent due to the triple lock, here is a projection.
“The minimum amount that could increase due to the triple lock 2027 – will be around £12,861, which will be £300 more than the tax-free allowance as it remains constant and will gradually increase further.”
Minimum new state pensions based on the lowest rise will be £12,861 in 2027, £13,183 in 2028, £13,512 in 2029 and £13,850 in 2030, Martin Lewis Money Show Live predicts.
He added: “So you can see the problem persists. My main concern was the manager. How do we get 90-year-olds to fill out self-assessment forms when they’re only earning £50 over the limit?”
Mr Lewis recalled that in an interview with Chancellor Rachel Reeves after the Budget, he asked viewer Rebecca: “Does my 85-year-old father, who is living with dementia, now need to fill in a tax return because the state pension will take him over his personal allowance?”
Ms Reeves replied: “So if you have a state pension and you don’t have another pension, you don’t need to fill in a tax return. I’m making that commitment for this Parliament. You’re right, it looks like 2027 will pass. We’re working on a solution as we speak to make sure we’re not going after small amounts of money.”
Mr Lewis said: “People will have to pay tax, won’t they just have to file returns, or will they not have to pay tax?”
Ms Reeves replied: “They won’t have to pay taxes in this Parliament. I can’t make any commitments beyond that.”
