Pensioners across the UK are facing growing financial concerns as they are increasingly being drawn into paying income tax. This is due to the failure to raise the income tax thresholds at which tax is paid in line with increases in income, including pensions. The net effect is that more pensioners are paying tax for the first time, while others are paying higher rates of tax due to a phenomenon known as fiscal drag.
An increase in the state pension of 8.5 percent in April means that hundreds of thousands of pensioners on lower incomes have been drawn into paying income tax. Age Concern and Independent Age have both reported an increase in calls to their helplines in recent weeks from pensioners confused about the issue and worried about the impact on their already strained financial situations.
Joanna Elson, chief executive of Independent Age, highlighted the particular vulnerability of older people on low incomes who are struggling to make ends meet. She emphasized that any potential reduction in income is incredibly worrying for this demographic.
The threshold for starting to pay tax is an annual income of £12,750. This is above the current maximum state pension of £11,500, however, other income from private pensions or investments could push people above the threshold. Audrey Cook, a 90-year-old pensioner, shared her concerns that another increase in her state pension next year could tip her into the category of having to pay income tax. She expressed frustration over the feeling of paying taxes twice, once during her working years and now on her modest pension income.
Pam Carrington, a widow from the Wirral, described how her small private pension is now subject to taxation, resulting in a reduction of £2 per month. She expressed her worry about the impact of these additional deductions on her already limited income.
HM Revenue and Customs (HMRC) clarified that those who earn extra income outside of a PAYE number, such as rental income or interest on savings, may need to complete a self-assessment form. However, HMRC emphasized that most pensioners will not need to complete a self-assessment and will instead receive a Simple Assessment at the end of the tax year, outlining any tax owed.
A Treasury spokesperson emphasized that pensioners do not pay income tax if their sole income is from the full new state pension. They reaffirmed the government’s commitment to maintaining the Triple Lock, which will raise the basic state pension to almost £170 a week.
