Hundreds of thousands more pensioners set to be targeted by HMRC
Rachel Reeves has come under fire over tax bands.(Image: PA)
Pensioners who only have “modest” savings pots could soon find themselves targeted by the taxman, under controversial rules set by Rachel Reeves.
It’s because of tax bands, which have stayed frozen since 2021.
Over that time, the income of millions of retirees has increased, pushing more over the tax-free personal allowance limit.
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The full state pension will climb within a few pounds of the £12,570 personal allowance from April.
That means it only takes small private pension pots or interest earned from savings to push households over this limit.
They will then face having to pay income tax.
Experts argue this defeats the object of triple lock increases every year, as they will just end up losing money to HMRC.
Rachel Reeves has come under fire on this issue, which is known as fiscal drag as more people enter new tax bands when their income increases.
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Ms Reeves has vowed to protect the poorest seniors whose sole income is the state pension.
But hundreds of thousands of others with small private pensions, savings or other forms of income will face having to pay.
An extra 600,000 pensioners are expected to pay income tax in 2026/27 and one million by 2030/31, according to latest forecasts.
An Assistance for Seniors spokesperson said: “This is no longer a problem affecting only those with substantial pension pots.
“We are fast approaching a point where simply receiving the full state pension, alongside even a modest amount of savings interest, is enough to trigger a tax bill.
“Pensioners need to understand their position before April 6 – not after.”
Derence Lee, chief finance officer at Shepherds Friendly, said: “With the full new State Pension rising to £11,973 in April, and personal allowance now frozen at £12,570 until 2031, more retirees are edging dangerously close to paying income tax on their state pension.
“The triple lock has played a vital role in helping pensioners keep pace with the high inflation seen in recent years.
“However, if the tax-free allowance remains frozen, some of the recent state pension increases could effectively be taken back through income tax.”