Healey’s state pension shield could create ‘messy £200m cliff edge’
The Treasury’s plans to shield low-income pensioners from income tax could lead to a “messy” cliff edge and a ballooning bill for future governments, a former pensions minister has warned. Chancellor John Healey will use his maiden Autumn Budget this week to protect nearly one million retirees who are dependent on the state guarantee by [...]
A former pensions minister has expressed concerns over the potential financial impact of Chancellor John Healey's plan to shield low-income pensioners from income tax. The scheme, announced in last year's Budget, aims to protect nearly one million retirees by exempting them from income tax. However, when the full state pension rises to £13,036, those relying solely on this benefit will exceed the £12,570 personal allowance threshold, potentially dragging them into the income tax net.
This could result in the payment of nearly £500 in tax. To prevent this, Healey is expected to raise the tax-free allowance for this group to £13,036. However, this move is forecast to cost taxpayers £200 million annually by 2030, according to Steve Webb, a former pensions minister. Webb warns that the proposed solution may be "messy" and "increasingly expensive" as the gap between the new state pension and the tax threshold is expected to widen each year.
Even with a modest increase in the state pension, the gap is projected to grow, making the policy difficult to reverse. Webb also raises concerns about the policy's impact on individuals with only a small private pension, stating that they may lose the protection and face higher tax bills. The Treasury has yet to clarify how this policy will affect these individuals.
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