State pensioners born before 1953 or 1951 face new 'tax' within three years

The vast majority of state pensioners face being TAXED on their payments from the Department for Work and Pensions (DWP) by 2027. It has been warned that, under frozen thresholds from the previous Conservative Party and now Labour Party governments, pensioners could face a HMRC shock.

The frozen threshold creates a stealth retirement tax as the rising state pension will eventually exceed the tax-free threshold of £12,570. The Office for Budget Responsibility estimates the full new state pension will exceed the tax free threshold by April 2027 at an annual rate of £12,592.

By 2029, the OBR expects the state pension to reach £13,230, which would make retirees liable for an income tax bill of over £100 a year if this is their only income. Experts said it will leave pensioners in the “perverse situation” where they will be handing government cash back to the taxman.

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The situation will only apply to retirees who receive the new state pension which covers men born on or after 6 April 1951 and women born on and after 6 April 1953. Jon Greer, head of retirement policy at wealth manager Quilter, warned that the state pension was only £1,000 a year away from breaching the personal allowance, meaning pensioners with “even a modest additional income” were paying income tax on their pensions.

He said: “However, the reality is that we are soon set to be in the perverse situation where pensioners might have to start paying back their state pension to HMRC because of frozen allowances, many pensioners receiving their state pension are already in this position.

“Due to the way the triple lock operates, if inflation or wage growth are over 4pc for the next two tax years the Government will need to start asking for more pensioners for some of its pension benefit back in tax unless it increases the personal allowance.”