A million pensioners will be spared from an income tax hike on their state pension, according to Rachel Reeves. The elderly were set to pay from 2027 after the Chancellor froze tax thresholds in the Budget for an additional three years. The state pension is projected to surpass the personal allowance of £12,570 by 2027-28, meaning pensioners would have faced taxation on any amount above the tax band. However, Ms. Reeves assured that they won't have to pay the tax during this Parliament, which is expected to end in 2029. Without intervention, around ten million retirees would have been taxed. Many pensioners also receive a private pension alongside their state pension. Income tax thresholds have been frozen since 2022-23, allowing workers to earn £12,570 before paying tax, with 20% applied to earnings between £12,570 and £50,270. Higher rates of 40% and 45% apply to earnings between £50,271 and £125,140 and above £125,140, respectively. Freezing thresholds prevents fiscal drag, where inflation erodes the purchasing power of income, affecting approximately 790,000 workers and nearly a million non-taxpayers. Labour had initially promised to keep thresholds frozen until 2028, but this measure will generate £8.3 billion.
