More than 12.5 million pensioners in the UK are caught in what critics call a “two-tier” state pension system, with many facing unexpected tax bills. Basic state pensioners, in particular, are being hit hard due to the government’s decision to freeze the personal tax-free allowance at £12,570 until April 2031.
Dave Morgan, a 72-year-old former building surveyor from Clacton-on-Sea, Essex, has voiced his frustration. Despite having worked 43 years and diligently paid taxes, Dave finds himself among the millions who will not benefit from a recent exemption announced by Chancellor Rachel Reeves. The chancellor confirmed that from the 2027/28 tax year, pensioners whose sole income is the basic or new Department for Work and Pensions (DWP) state pension will no longer have to pay income tax if their pension exceeds the personal allowance.
However, pensioners like Dave, who receive a modest private pension in addition to their state pension, remain liable for tax. This has sparked outrage, with critics labeling the policy “brutally unfair” and calling for equal treatment of all pensioners.
READ MORE: Our Family Day Out at Peppa Pig Space Adventure at Birmingham NEC: A Delightful Surprise
“It should be either everyone or no one that benefits,” says Dave, expressing his disappointment at the divide. Dennis Reed, founder of the campaign group Silver Voices, added, “Taxing any part of the state pension is unjust, as it is meant to be a guaranteed safety net earned through a lifetime of work. This policy will create unfair anomalies.”
Another pensioner, who prefers to remain anonymous, faces a tax bill from HMRC totaling £1,958 annually. They explained their situation: receiving £414 a week from the old state pension—£21,528 a year—and an additional £16 a week after the passing of their spouse, which brings their income to £22,360 annually, exceeding the personal allowance by nearly £9,000.
Responding to the controversy, a Treasury spokesperson said, “Anyone whose only income is the full new or basic state pension without any increments will not pay income tax, and we remain committed to that policy.”
Former pensions minister Sir Steve highlighted the broader context: “Most pensioners today pay income tax, and this proportion is increasing year on year.” The debate continues as pensioners grapple with what they see as an unfair tax burden during their retirement years.