Sir Steve said: \u201cFrom 2027 onwards, someone with just the new state pension and no other income will start getting annual tax bills from HMRC. This is politically embarrassing for the Government, but the proposed solution is deeply flawed.<\/p>\n
\u201cIt discriminates against those on the old state pension system, even if they have identical income to someone on the new system, and creates unwelcome \u2018cliff edges\u2019 for those who have even a pound of other income.<\/p>\n
\u201cIt is also clearly a temporary sticking plaster solution for a problem that will have to be addressed at some point.\u201d<\/p>\n
The \u00a31 cliff edge<\/p>\n
Under the policy, someone living on the state pension alone would not pay tax. However, if they drew even \u00a31 in extra income, they would not only pay tax on that, but on the portion of their state pension above the tax-free threshold as well.<\/p>\n
By 2029-30, LCP estimated the state pension could hit \u00a313,671 \u2013 meaning \u00a31 of extra income could generate a tax bill of \u00a3220.<\/p>\n
According to Telegraph analysis of the figures, someone with a full state pension and a \u00a31,000-a-year private pension would hand HMRC \u00a3420 \u2013 an effective tax rate of 42pc on their private pension.<\/p>\n
Helen Morrissey, of Hargreaves Lansdown, said: \u201cThis change will relieve the admin burden on some pensioners, who may have suddenly had to fill in a simple assessment form for the first time.<\/p>\n
\u201cHowever, it will be seen as hugely unfair by others who may have struggled to save into a small pension and now face paying tax.<\/p>\n
\u201cEvery penny counts when you are on a lower income and they might find themselves looking at those on a similar income, who don\u2019t pay any tax, and asking \u2018what\u2019s the point in saving into a pension?\u2019\u201d<\/p>\n
Cost to the taxpayer<\/p>\n
If LCP\u2019s estimate proves to be correct and the new state pension hits \u00a313,671 by 2029, the Chancellor\u2019s plan would hand eligible retirees a \u00a3220 tax write-off \u2013 costing more than \u00a3170m a year in lost revenue.<\/p>\n
Sir Steve warned that future governments might struggle to reverse the measure, as has been the case with the triple lock.<\/p>\n
He added: \u201cIt may be reasonably easy to defend not collecting \u00a388 in tax from relatively low-income pensioners in year one. But if this policy continued into the next Parliament, it would get more and more expensive with every passing year and be very hard to switch off, like the triple lock.<\/p>\n
\u201cAs the years go by, the Government would be writing off hundreds of pounds per eligible pensioner, increasing the disparity between them and others struggling by on a modest income.<\/p>\n
\u201cThis also comes at a growing cost to the taxpayer.\u201d<\/p>\n
In the run-up to the 2024 general election, the Conservatives announced that the tax-free allowance would rise with the triple lock, meaning retirees would never pay tax on their state pension.<\/p>\n
However, the policy, known as \u201ctriple lock plus\u201d, was not adopted by the incoming Labour Government.<\/p>\n
The Treasury declined to comment on the figures and said it would set out more details in due course.<\/p>\n","protected":false},"excerpt":{"rendered":"Sir Steve said: \u201cFrom 2027 onwards, someone with just the new state pension and no other income will…\n","protected":false},"author":2,"featured_media":589022,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,2222,4178,4174,4175,5438,2221,42032,58919,56,54,55],"class_list":["post-589021","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-money","tag-pensions","tag-personal-finance","tag-personalfinance","tag-standard","tag-state-pension","tag-tax-rises","tag-top-story","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/589021","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=589021"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/589021\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/589022"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=589021"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=589021"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=589021"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}