One million more pensioners to pay income tax in ‘shock stealth grab’
Up to one million more retirees will have to pay income tax as a direct result of frozen tax thresholds, according to new forecasts by the budget watchdog.
The Office for Budget Responsibility (OBR) forecast published for Chancellor Rachel Reeves’s spring statement on Tuesday showed 600,000 more pensioners will face income tax by 2026-27 than previously predicted.
This figure is expected to rise to 1 million by 2030-31.
Although state pensions are subject to income tax, people whose sole income comes from this income have historically avoided paying it.
This is because the full state pension, currently £230.25 per week, falls below the annual personal tax credit of £12,570.
Ms Reeves extended the personal allowance freeze until 2031 in the November 2025 Budget.
For the first time since its launch, the full new state pension is set to exceed the personal allowance in the 2027-28 tax year under the triple lock policy, which guarantees increases in line with inflation, earnings or 2.5 per cent.
HM Revenue and Customs has updated its model of the impact of threshold freezes on people whose main source of income is a state pension, the OBR said.
Some retirees with additional income streams will already pay taxes before 2027-28, according to the watchdog.
“Updated modeling of this population at all personal tax thresholds since April 2021 increases the estimate of the number of people having to pay tax by 600,000 in 2026-27 and by one million in 2030-31,” the OBR wrote.
“However, the majority of this population is forecast to pay only a very small amount of additional tax due to the freeze, which will increase the return on the November 2025 Budget measures by just £0.1bn in 2030-31.”
The OBR also said the government had promised in this parliament to exempt people whose sole income is a state pension from paying income tax, but had not yet set out the details.
The government has confirmed its intention to exempt those on state pensions and detailed this policy well ahead of the April 2027 change.
Liberal Democrats said Ms Reeves should immediately explain how pensioners will be protected from these hidden taxes.
Daisy Cooper, the party’s Treasury spokeswoman, said: “Hidden in the fine print of today’s spring statement is a shocking catch hitting another 1 million pensioners.
“Every penny counts for poor retirees and these unfair tax increases could be the last straw.
“Rachel Reeves must urgently explain how she will protect elderly and poor retirees from this hidden tax squeeze.
“Pensioners have worked hard all their lives, paid into the system and played by the rules. Poorer pensioners should not be paying the price for the Labor government’s economic failure.”
