New State Pensions update after calls to stop 'punishing' older people with 'poverty' tax

An elderly woman is putting money into her open purse

An online petition urging the government to abolish tax on State Pensions and benefits has gathered momentum with more than 10,270 signatures. The call argues that such taxation is “punishing pensioners and those on some benefits”, thereby pushing them further into poverty.

The appeal has now qualified for a formal response from the UK Government. The petition was launched by Kenneth Bardsley following the announcement in November that the Personal Allowance income threshold will stay frozen at £12,570 for the 2024/25 financial year. The taxable income boundary has remained static since 2021/22 and is viewed by some as a ‘stealth tax’, an indirect method of bolstering our tax contribution without hiking actual tax rates.

Many people are likely unaware that Employment and Support Allowance (ESA) and Jobseeker’s Allowance (JSA) can be subject to tax if they’re granted based on National Insurance Contributions. On the other hand, non-taxable benefits are assessed by means testing – gauged on the claimant’s fiscal circumstances.

Titled ‘Exempt all state pensions and benefits from income tax’, the petition is hosted on the petitions-parliament website, and it has already garnered 10,276 signatures as of Friday morning, the Daily Record reports. It says: “We believe that pensions and benefits are very low and therefore should NOT be taxable. We think this is pushing people even deeper into poverty.Link

“We believe that in effect this taxation is punishing pensioners and those on some benefits for things that are largely no fault of their own and that this is an utter disgrace in a democracy, in one of the world’s richest countries. It is our view that it is unconscionable and that the Government must act.”

The petition would be considered by the Petitions Committee for debate in Parliament if it reaches 100,000 signatures. You can view it online here.

The Personal Allowance has been frozen at £12,570 since the 2021/22 financial year, setting an initial level of earnings on which people don’t pay income tax. However, the 8.5 per cent uprating on the New and Basic State Pension from April 8 is expected to pull an estimated 900,000 retirees into the tax net.

The full New State Pension will increase from £203.85 per week to £221.20. As payments are typically made every four weeks, this amounts to £884.80 each pay period.

Annual income from State Pension alone will rise from £10,600 to £11,502, leaving just £1,068 before the Personal Allowance threshold is exceeded.

This means anyone with additional income of £89 or more per month – on top of their New State Pension – may receive a tax bill the following year due to the State Pension uprating.

Those on the full rate of the Basic State Pension will see their weekly payments rise from £156.20 to £169.50, equating to £678 each pay period. This increase amounts to an additional £692 over the 2024/25 financial year, boosting the annual income from £8,122 to £8,814.

This leaves a mere £3,756 before reaching the personal tax threshold, equivalent to an extra income of £313 per month.

The new State Pension payment rates, including additional elements, have been released and can be found on the GOV. UK website.

New State Pension payment rates for 2024/25 have seen an increase of 8.5%.

Basic State Pension payment rates for 2024/25 have also risen by 8.5%.

Additional pension payments have seen increments rise by 6.7%.

Increments to the following have also risen by 6.7%:.

Addition at age 80 remains unchanged at £0.25.

Increase of Long-term incapacity for age.

Invalidity Allowance (Transitional) for State Pension recipients.