The Chancellor made a controversial decision at the Budget around tax bands
Rachel Reeves has been criticised over frozen tax bands.(Image: PA)
Older Brits with only small private pensions could soon be ‘punished’ by HMRC.
Frozen tax bands mean the income of many state pensioners is climbing past the income tax threshold.
This is known as the personal allowance, currently set at £12,570, and the point at which people start paying income tax.
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Chancellor Rachel Reeves has confirmed those whose sole income is the state pension will not have to pay any tax, even when they pass the personal allowance rate, set to happen in 2027.
However, retirees with private pensions will face having to pay income tax, regardless of how small.
The controversial decision to keep tax bands frozen at the recent Budget means all pensioners are set to pass the personal allowance threshold the year after next.
Many with other income streams like private pensions may pass it in 2026 or be already over it.
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Derence Lee, chief finance officer at Shepherds Friendly, said: “Due to the extremely high levels of inflation the UK has experienced since 2020, state pensions have been increasing at a rate that some experts believe to be unsustainable in the long term.
“With pensions expected to surpass the frozen tax-free allowance, more retirees will be pushed into the tax-paying bracket.
“As a result, pensioners should begin to take into account that they may soon need to pay income tax on their pensions should no changes be made to current status-quo.
“Whilst the triple lock has been helpful in ensuring retirees’ incomes keep up with the cost of living, taxing pensioners could have significant financial implications, particularly for those who rely heavily on their pensions to cover essential living costs and make ends meet.”