The Tories are regularly accused of coddling older voters while abandoning the young. The older generation get their state pensions uprated every year by the triple lock, while the younger get stuck with student debt. That’s the theory, anyway.
Plenty of pensioners will disagree with that analysis, noting that the UK state pension is among the lowest in the developed world.
Now they have a new reason to feel aggrieved. Thanks to Prime Minister Rishi Sunak and Chancellor Jeremy Hunt‘s repeated stealth tax raids, millions more will pay income tax on their retirement earnings.
When the Tories ousted New Labour in 2010 to form a coalition government with the Lib Dems, just 4.5million pensioners paid tax.
Most of them were comfortably off, thanks to generous company and workplace pensions.
From April, an incredible nine million pensioners will get an income tax bill. The numbers will have doubled under Tory rule.
Of these, 650,000 pensioners will be dragged into paying income tax from this April.
And their numbers will only grow after that.
There are roughly 12.5 million pensioners in the UK, so just 3.5million will escape an tax bill from April, a figure that will shrink every year.
This is being driven by two forces. One good, one not so good.
The good news is that the triple lock has really driven up the value of the state pension in the last couple of years.
Pensioners received a 10.1 percent pay rise last April, in line with inflation, and are set for an inflation-busting hike of 8.5 percent in the spring, matching wage growth.
That will lift the full new state pension to a maximum of £11,501.
That’s still nowhere near enough to live on comfortably, of course. However, as I’ve written before, any alternative method of calculating the annual state pension upgrade would undoubtedly be worse.
This is why pensioners love the triple lock and the Daily Express has sworn to defend it against Treasury threats.
Now to the not so good thing.
Sunak and Hunt have frozen income tax thresholds for a staggering six years, a freeze that will continue all the way to the 2028/09 tax year.
Without the freeze, the tax-free personal allowance would have climbed to £14,300 from April. Instead, it remains stuck at just £12,570.
Within just two or three years, the state pension could exceed that. Then we’ll find ourselves in uncharted territory.
The Department for Work & Pensions could pay the state pension to 12.5million retirees, only for HM Revenue & Customs to instantly grab a chunk of it back in tax.
It sounds like an administrative nightmare
In fact, many are already in this position.
Older pensioners who receive the basic state pension plus additional state pension such as Serps and S2P already pay income tax on their state pension.
Many more will soon do the same.
From April, pensioners only need to earn £1,069 on top of a full new state pension to exceed the personal allowance and face an income tax bill.
READ MORE: DWP state pension increase could see older people get £884 every month
It will come as a shock too many, who may not realise the danger until they receive a demand from HMRC.
The tax will come from their private pension even though it’s been triggered by an increase in the state pension.
Pensioners who have been dragged over the £12,570 personal allowance will pay basic rate income tax at 20 percent on earnings above that level.
Those with more generous incomes will be tipped over the higher rate tax threshold of £50,270, which is also frozen. They will pay a marginal rate of 40 percent.
Hunt has developed a habit of giving with one hand and taking back with another, as we saw with the recent National Insurance tax cut.
Now he’s pulling the same stunt with pensioners. Another 650,000 retirees will be at the sharp end of this in April. I wonder who they’ll be voting for at the upcoming election.
