About three-quarters of pensioners already pay income tax because they have additional income to the state pension.
They include 2.5 million pensioners – including widows and widowers – whose state pension operates under the pre-2016 system. They receive a basic pension and a SERPS pension, which means they pay tax.
Steve Webb, partner at pension consultants LCP and former pensions minister, also highlights those with a very small private pension who would have to pay tax.
Workers on the same income as the level of state pension would also be taxed, while pensioners would not be.
“There is a real risk that pensioners on the new system will be more favourably treated,” Mr Webb said.
“There is no costing for this policy in the Budget documents which suggests that it is still very much an idea rather than a firm plan. But it will be incredibly difficult for the Treasury to come up with something that is workable and fair.”
Rachel Vahey, head of public policy at investment platform AJ Bell, said: “Collecting the little bits of tax owed from millions of pensioners was always going to be an administrative headache for the government.
“It’s no wonder they’ve put their tax collecting thinking caps on to find ways to avoid it, but we will have to wait and see what process they come up with and whether it will indeed make pensioners’ lives simpler.”