A fresh online petition is urging the UK Government to raise the personal tax allowance from £12,570 to £20,000 to assist low-income individuals “get off benefits and allow pensioners a decent income”. Under Rachel Reeves’ plans, the state pension is set to rise, while the personal allowance remains the same, meaning more pensioners will be pushed above the threshold to pay taxes.
The petition’s creator, Alan David Frost, says it’s “abhorrent to tax pensioners on their State Pension when it is over the personal allowance” limit. He believes that this increase would “inject more cash into the economy”. Since its launch the petition has gathered 12,000 signatures, which means the government will now need to give a written response to it. If it reaches 100,000 signatures, it could be considered by the Petitions Committee for debate in Parliament.
The UK Government recently confirmed that the Personal Allowance will remain at £12,570 until the beginning of the 2028/29 financial year. However, last month, Liberal Democrat MP Ben Maguire called on Chancellor to evaluate the potential benefits of raising the tax allowance for those above the State Pension age to £15,000.
In a written reply, Treasury Minister James Murray MP outlined how the Labour Government “is committed to keeping taxes as low as possible for pensioners while ensuring fiscal responsibility”. Yet he did not directly address the proposal for an assessment on increasing the income tax threshold.
The petition argues for the benefits of raising the allowance, saying: “We think this would help low earners to get off benefits and allow pensioners a decent income.” The plea continues to argue against the current tax system for pensioners stating: “We think it is abhorrent to tax pensioners on their State Pension when it is over the personal allowance. We also think raising the personal allowance would lift many low earners out of benefits and inject more cash into the economy creating growth.”
At present, the full New State Pension stands at £11,502 for the 2024/25 tax year, with an increase to £11,973 slated for 2025/26. This leaves pensioners with a small gap before they hit the tax threshold only £1,068 left in the current year, dropping further to just £597 in 2025/26.
Those whose only income is the full New State Pension will not face income tax, but additional earnings such as employment, private or workplace pensions could bring tax implications for pensioners. Generally, this tax will be collected through PAYE on employment income and on private pensions automatically. Those who do not have taxes automatically deducted can expect a tax bill from HMRC in the summer to be settled by January of the following year.
While there’s some debate about the number of retirees who will end up paying tax, it’s estimated that of the 12.9 million State Pension recipients in the UK, roughly 8 million, which equates to 62%, are already taxed on their retirement income.
Any tax paid in retirement is based on the amount of income earned above the threshold, not the total additional income. For instance, if someone has a total annual income of £13,000, they will pay tax on £430 – the amount exceeding the £12,570 threshold.
The individual would then be required to pay HMRC 19% of their income above the threshold, which is the starter rate of tax in England (20% in Scotland). The DWP will soon publish the full list of uprated State Pension and benefit payments. So far, only the New and Basic State Pension rates have been confirmed, not the additional elements (which are increasing by 1.7%). To estimate your future State Pension payments, use the online forecasting tool on GOV. UK here.