The Office for Budget Responsibility (OBR) predicts that the state pension will be higher than the tax-free personal allowance by 2027.
The Conservatives’ latest pledge means that a pensioner’s tax-free allowance would also rise according to the rules of the triple lock, to halt the increasing numbers of pensioners who will be expected to pay tax.
Rishi Sunak said this “demonstrates we are on the side of pensioners” and would bring people “peace of mind and security in retirement”, but Labour have criticised the plans.
Jonathan Reynolds, the shadow secretary of state for business and trade, speaking on BBC Breakfast, said: “I don’t think it’s credible, I don’t think it’s real, and I think pensioners will completely see through this.”
Labour’s Jo Stevens added on BBC Radio Wales: “Why would anyone believe Rishi Sunak on tax? We’ve got the highest tax burden in this country since World War Two.
“And this is the man who’s actually frozen personal allowances and set this in stone in his budgets, and it’s another desperate move from a chaotic Tory party just torching any remaining facade of its claims to economic credibility.
“They’ve promised in the first week of this campaign tens of billions of pounds of spending promises that are completely unfunded. They have a completely unfunded £46bn policy to scrap national insurance that threatens the very basis of the state pension.”
But charities have said that the rising numbers of pensioners expected to pay tax in a few years’ time is an issue that must be addressed.
Caroline Abrahams, charity director at Age UK, said: “Because the value of the state pension has been going up, but personal allowances have been frozen in recent years, as things stand an older person who receives just the full new state pension and nothing else will become liable for income tax in a few years’ time.
“This is certainly an issue which the next government will need to address because it is undesirable for the state to give older people money with one hand and then take it away with the other.”
Many older people could end up owing tax at the end of the year and some may need to complete a tax return, Age UK has warned. It would also push more admin onto HMRC.
“Older people have raised concerns with us at Age UK about this looming problem and as a charity we have been calling for personal allowances to rise again,” Abrahams said.
“This would not only help older people in a few years time, it would provide some much-needed relief for those with modest private pensions who are paying income tax already, and who are finding life tough because of high prices.”
Pensioners used to enjoy a higher tax-free allowance than the rest of the population but that ended under the coalition government. In real terms, the current personal allowance for pensioners is about 10% lower than the one they enjoyed in 2010.
The share of people aged 65 and over who pay income tax has risen over time from 44% in 2000 to 62% in 2023, according to the Institute for Fiscal Studies (IFS).
The Centre for Ageing Better warns that those retiring in years to come will be “hit even harder by any reduction in the state pension”.
Dr Carole Easton, chief executive at the Centre for Ageing Better, said she welcomes “measures from any political party which will help give greater financial security” to the two million pensioners living in poverty in the UK.
“Pensioner poverty rates are close to the highest levels this century, we have one of the lowest state pensions in the developed world and more than one million pensioners have no savings,” Easton added.
“We should expect everybody to have a dignified quality of life in retirement in a rich and compassionate country. And yet the average annual income of poorest pensioners is below minimum living standards and many pensioners face difficult choices between eating and heating.”
Others warn that far more must be done to support pensioners facing poverty – after the Tory government has slashed public services which elderly people rely on to live.
Lord Prem Sikka, who is an emeritus professor of accounting at the University of Essex and the University of Sheffield, posted on X: “Today Tories are chasing the pensioner vote. That is those who have survived low pension, queues for social care, GP, dentist, hospital, cost of living crisis. The Tories are gaslighting people.”
Do you have a story to tell or opinions to share about this? We want to hear from you. Get in touch and tell us more.
