Over nine million state pensioners to be hit with Labour’s ‘retirement tax’ next year

OVER nine million state pensioners are set to be hit with a “retirement tax” next year with rates rising next month.

The blow comes due to a combination of a rising state pension and frozen income tax thresholds.

Forecasts by Deutsche Bank predict the triple lock will rise by £600 (5.5%) in April 2026 to £12,631, breaching the personal allowance, The Telegraph reported.

It means those whose only income is the full new state pension will pay tax on it for the first time.

Meanwhile, around nine million pensioners in total are forecast to pay tax from April 2026.

This is because you are also taxed on income outside of your state pension, including any that comes from a job or private pension.

It come as the state pension is set to rise by 4.1% on April 6, meaning a full state pension will rise from £11,502 currently to £11,973.

The triple lock sees the state pension go up by whatever is highest out of inflation, 2.5% or wages.

The CPI measure of inflation for the previous September is used or wages for the previous May to July.

Deutsche Bank is forecasting average weekly earnings will reach 5.5% in July, higher than predicted inflation for September.

It means pensioners on a full new state pension will have to pay tax on £61 (£12,631 – £12,570) at 20%, equalling around £12.

Those who income is higher than this will obviously have to pay more tax.

SteveWebb, partner at pension consultants LCP said: “Year-after-year, more and more pensioners are being dragged into the tax net, and the next couple of years look to be no exception.

“With a 5.5% rise in April 2026, someone with no income other than a full new state pension will be paying tax for the first time.

“For most pensioners with simple tax affairs this will mean an end of year tax bill sent out to them by HMRC, though they should not have to fill in a tax return.

“Many of these bills will be for very small amounts.”

Mr Webb added that HM Revenue and Customs may not collect tax from those just on a full new state pension from 2026.

In May 2024, then Chancellor Jeremy Hunt said the income tax personal allowance would be frozen at £12,570 until 2028.

The freeze was first put in place in 2021.

In her first Budget in October that year, Chancellor Rachel Reeves had been widely expected to extend the freeze beyond 2028.

However, she confirmed the Government would increase the thresholds in line with inflation from this date.

Ms Reeves said: “There will be no extension of the freeze in income tax andNational Insurancethresholds beyond the decisions of the previous government.

“From 2028-29, personal tax thresholds will be uprated in line with inflation once again.”

Unfreezing these thresholds means people will be able to earn more without paying more tax.

INCOME TAX RATES

You currently pay no income tax if you earn £12,570 or less.

On earnings between £12,570 and up to £50,270 you pay the basic income tax rate of 20%.

So, if your earnings are £20,000, you pay income tax on £7,429.

Earnings between £50,270 and up to £125,140 are taxed at 40%.

The additional income tax rate, which applies to earnings over £125,140, is 45%.

Income tax thresholds generally rise yearlyso that people can earn more without paying more tax.

However, the Government has frozen them in recent years in order to boost its coffers.

Flying Eze asked HMRC to comment.

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