A petition calling for everyone on the State Pension to be exempt from income tax has received more than 15,000 signatures – meaning the Government is required to respond
Government responds to calls for State Pension to be tax-free for everyone(Image: Peter Cade via Getty Images)
The Government has issued a response to a petition demanding that everyone receiving the State Pension should be exempt from paying tax. The petition argues it is unfair to tax the State Pension and insists it shouldn’t affect the tax threshold.
Over 15,000 people have now backed the petition, which seeks to make “the state pension tax exempt and not impact the tax threshold,” requiring the Government to provide an official response. Demands for the State Pension to remain untaxed follow alerts that the number of pensioners liable for tax is set to rocket due to rising incomes.
New State Pension rates are forecast to surpass the Personal Allowance threshold – the income on which you pay no tax – by April 2027. The Personal Allowance threshold will remain fixed at £12,570 until April 2028, but the New State Pension is projected to breach that income ceiling by April 2027, reports the Manchester Evening News.
HM Treasury responded: “Exempting the State Pension from income tax would be expensive at a time when the Government has inherited a very challenging set of fiscal circumstances. Individuals earning above the higher rate threshold would benefit more than those with incomes below, and those earning below the Personal Allowance would not benefit at all.
“The Government keeps all taxes under review as part of the policy making process. The Chancellor will announce any changes to the tax system at fiscal events in the usual way.”
The petition’s creator, David Bresnahan stated: “We want the government to make the state pension tax exempt and not impact the tax threshold. We think it is wrong to tax the state pension.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, has warned that more pensioners will be ‘dragged into taxpaying territory’ in the coming years due to frozen income thresholds.
Ms Morrissey elaborated: “The pension tax paying population is surging. On the one hand, this can be celebrated as a sign of rising incomes among this population, but it’s also fair to say that frozen tax thresholds have also played a huge part in dragging more pensioners into taxpaying territory. With the freeze set to stay in place until 2028, we expect to see these numbers continue to swell.
“There are things that can be done to help manage these tax liabilities. For a start, up to 25 per cent of your pension can be taken tax free and this can be used alongside taxable income to keep you below an income tax threshold. Retirement income is also more than just about pensions, with ISAs also able to play a key role.
“Paying into a pension reduces your adjusted income and this can reduce the amount of tax you have to pay or even stop you from breaching a threshold that moves you into paying tax at a higher rate.
“This can be especially helpful to those who earn between £100,000 and £125,140 per year who get hit by the stealthy 60 per cent tax trap that erodes your personal allowance.”
Under the Triple Lock policy, both the New and Basic State Pensions are adjusted annually in line with the highest of three figures: the average annual earnings growth from May to July, the Consumer Price Index (CPI) in the year to September, or 2.5 per cent. This policy is designed to prevent the value of State Pensions from being eroded by cost of living increases.
In April, the New and Basic State Pensions saw a rise of 4.1 per cent. However, future projections from the Labour Government anticipate a rise of 2.5 per cent over the next four financial years.
Based on these calculations, the full New State Pension is projected to be worth £12,578.80 in the 2027/28 financial year – £78.80 above the Personal Allowance.
While the amount of State Pension subject to tax may seem relatively small – as tax is only paid on the amount exceeding the Personal Allowance – pensioners with additional income sources could find themselves having to fork out more to cover a tax bill, unless it’s automatically deducted from private or workplace pensions through PAYE.
Online guidance available on GOV.UK provides information on who might need to pay tax on their pension, including a useful tool to calculate potential tax payments and the various methods of payment.
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The latest State Pension Triple Lock predictions indicate the following projected annual increases:.
State Pension payments for 2025/26
Full New State Pension
Weekly payment: £230.25Four-weekly payment: £921Annual amount: £11,973
Full Basic State Pension
Weekly payment: £176.45Four-weekly payment: £705.80Annual amount: £9,175
Future forecasts for the new State Pension
Under a 2.5 per cent increase, the full New State Pension will be worth:
2026/27 – £236 per week, £12,227.30 a year2027/28 – £241.90 per week, £12,578.80 a year
What is taxed
According to guidance on GOV.UK: “You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates.”
the State Pension you get – Basic or New State PensionAdditional State Pensiona private pension (workplace or personal) – you can take some of this tax-freeearnings from employment or self-employmentany taxable benefits you getany other income, such as money from investments, property or savings
Check if you have to pay tax on your pension
Before you can check, you will need to know:
if you have a State Pension or a private pensionhow much State Pension and private pension income you will get this tax year (April 6 to April 5)the amount of any other taxable income you’ll get this tax year (for example, from employment or state benefits)
You cannot use this tool if you get:
any foreign incomeMarriage AllowanceBlind Person’s Allowance
Use this online tool at GOV.UK to check if you have to pay tax on your pension. The complete guide to tax when you receive a pension can be found on GOV.UK.
The petition remains open until 7 August and can be located on the Government’s petitions website.
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