Government breaks silence after 54,000 demand State Pension made 'tax free'

An eye-watering 54,000 people have backed calls to make the State Pension tax-free. The government has responded to a Parliamentary petition which has been backed by an astonishing 54,000 signatures at the time of writing.

In the petition, the Department for Work and Pensions (DWP) is urged: "The Government should remove income tax on State Pension payments, to reduce the tax burden on pensioners. As the personal tax allowance has been frozen, some pensioners will now need to fill in tax return. We believe income from State Pensions should be tax free, in the same way as benefits are."

In reply, the government issued a response and said: "The Personal Allowance is set at a level high enough to ensure that pensioners whose sole income is the new or basic State Pension do not pay income tax. The Government is committed to ensuring that older people are able to live with the dignity and respect they deserve.

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"Income earned through employment is taxable. In general, benefits that are designed to replace income are taxable and the same applies to income from the State Pension. Income tax is due on an individual’s total income above the Personal Allowance (PA), currently £12,570. Total income could include: the State Pension (the basic State Pension, the new State Pension, and the Additional State Pension); other taxable benefits; a private pension (workplace or personal); or any other income, such as money from investments, property, or savings.

"The Personal Allowance (PA) is currently set at a level high enough to ensure that those pensioners whose sole income is the new State Pension or basic State Pension, and who have not previously deferred their State Pension or receive protected payments, do not pay income tax.

"The Government has nearly doubled the income tax PA since 2010 (30% higher in real terms), ensuring some of the lowest earners do not pay income tax. If the PA had been uprated by inflation every year since 2010-11, it would be £9,655 in 2023-24, which is £2,915 lower than its current level of £12,570. Due to the PA, around 30 percent of individuals do not pay tax.

"Removing income tax from the State Pension would add complexity to the tax system and those paying higher rates of tax would receive the greatest benefit. Lower-earning individuals with income below the higher rate threshold would benefit less and those earning below the PA would not benefit at all."

It signed off by saying: "The Government keeps all aspects of the tax system under review and any decisions on future changes will be taken by the Chancellor in the context of the wider public finances." At 100,000 signatures, this petition will be considered for debate in Parliament.