Stealth tax freeze threatens income of pensioners

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1.6m additional retirees dragged into income tax levy. 8.5m currently paying income tax, up from 4.9m in 2010.

New research for the House of Commons has shown that due to the income tax threshold freeze of £12,570 until 2028, an additional 1.6m pensioners will have to pay income tax in the next four years.

This is a significant increase from the 8.5m pensioners currently paying income tax, up from about 4.9m in 2010. If the threshold had increased with inflation, it would have reached £15,220 this year and £15,990 by 2027/28.

The Department for Work and Pensions reports there are 12.7m state pension recipients, with the Institute for Fiscal Studies noting over 60% now pay income tax, a rise from 50% in 2010.

The Resolution Foundation estimates that the tax threshold freeze will make the average tax-paying pensioner £1,000 poorer by 2027/28. Despite cutting national insurance (NI) by 2%, Chancellor Jeremy Hunt and Prime Minister Rishi Sunak’s aspiration to eliminate the tax has raised concerns that pensioners will bear the cost.

Both parties have committed to maintaining the state pension triple lock, ensuring it increases annually by the highest of wage growth, inflation or 2.5%. This policy will result in an 8.5% rise in the state pension this month.

A Treasury spokesperson said:

“Now the economy is turning a corner, we have cut national insurance by a third, meaning that – coupled with above-inflation increases to personal tax thresholds since 2010 – we have saved the average earner over £1,500 compared to what they otherwise would have paid.”

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