A quiet storm could be brewing for some of the UK’s oldest pensioners, as experts raise alarms over what’s being dubbed a “retirement tax” and it’s not just affecting a handful of people. According to the analysis of government data, nearly half of retirees aged 85 to 89 are now being dragged over the income tax threshold, thanks largely to the triple lock on state pensions.
In contrast, only 22% of pensioners under 85 are in the same boat, meaning those born between 1935 and 1940 are most at risk. And with many in this age group living with long-term health issues and watching their savings shrink, it’s hardly a small concern, reported the Express.
The issue comes down to a combination of rising pensions and a frozen personal tax allowance of £12,570. That limit hasn’t budged, but state pensions keep rising, which means more and more pensioners are tipping over the edge into taxable territory, even if the state pension is their only source of income.
Caroline Abrahams from Age UK is calling on the government to step in and raise the personal allowance. “People in this age group are much more likely to be in ill-health and also to find their savings have dwindled over the years,” she said, warning that the tax system is unfairly hitting the oldest and often most vulnerable.
Many of those affected come from the pre-2016 pension system, which allowed for a two-part state pension — a flat rate, plus an earnings-based top-up known as Serps. While it helped some pensioners boost their income at the time, it’s now pushing them over the tax line through no fault of their own.
Baroness Ros Altmann, a former pensions minister, fears the issue could snowball. “The most elderly may be unable to cope with tax returns, leaving them vulnerable to fines or penalties for failing to pay small amounts of tax,” she said.
Steve Webb, also a former pensions minister, added that with the triple lock in place and tax thresholds staying still, it’s only a matter of time before “most new state pensioners” are paying tax — even if they’ve no other income beyond the state pension itself.
The Treasury insists they’re helping, pointing to measures like frozen fuel duty and increased pensions, but with the new state pension set to surpass the tax-free threshold by April 2027, many are left wondering if help is really keeping pace with reality.
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