The latest figures for wages show an increase of around five per cent which means people of state pension age, born before 1959, could be dragged into paying income tax due
Pensioners may be hit with a surprising tax bill from HMRC due to stagnant tax thresholds, prompting calls for Labour Party Chancellor Rachel Reeves to take action. Rob Morgan, chief investment analyst at Charles Stanley, is pressing Ms Reeves to make necessary adjustments.
Elaborating on the tax thresholds freeze impacting those receiving the state pension (individuals born prior to 1959), Mr Morgan explained: “With the latest figures for wages at around 5% it is highly likely this element will be the relevant one for next April, and with the current level of a full new state pension at around £11,975 for the 2025/26 tax year a rise at that order will take it beyond the £12,570 income tax personal allowance.”
READ MORE: Emma Sleep’s foam pillow in spring sale for under £50 and shoppers say it’s a ‘game-changer’
He warned: “That would mean a pensioner relying on the standard state pension alone for their retirement income having to pay tax on a small part of it.”
Taking note of the financial predicaments, he said: “Chancellor Rachel Reeves may have ruled out tax rises in her Spending Review today but the long-term freeze on income tax thresholds remains firmly in place.”
Due to fiscal drag, more individuals are set to wrestle with an increasing tax liability – a situation where incremental salary escalations inadvertently bump taxpayers into higher tax brackets. Consequently, even with the most competitive savings accounts, post-tax real returns may barely remain in the green, especially for those within the loftier income tax tiers, reports Birmingham Live.
Mr Morgan has voiced his concerns, saying: “As well as being administratively messy in terms of dragging an unprecedented number of low-income pensioners into paying tax, it seems odd that this level of income should be taxed at all.”
He also pointed out the findings of the Pension and Lifetime Savings Association: “According to the Pension and Lifetime Savings Association, a single person in retirement needs £14,400 a year for a ‘minimum’ standard of living, a figure which is after tax and assumes no mortgage or rent costs.”
He highlighted the impact of fiscal policies on low earners: “This figure is significantly below where the income tax personal allowance would be if it had been increased with inflation, clearly demonstrating how low earners have suffered from fiscal drag too.”
With expectations that rates may decline in the coming months, securing a competitive deal now could extend the period savers enjoy returns that outpace inflation. It’s worth noting that the Personal Savings Allowance hasn’t seen any changes since its introduction in 2016, meaning that holding excessive funds in standard bank or building society accounts could attract unwanted attention from the tax authorities.
