One million more pensioners than previously predicted whose main source of income is the state pension will pay income tax as a result of frozen tax thresholds, the Budget watchdog has predicted.
Economic forecasts from the Office for Budget responsibility, published for the Chancellor Rachel Reeves’s Spring Statement on Tuesday, estimate that 600,000 more pensioners will be dragged into paying tax in the next financial year – 2026/27 – rising to one million by 2030-31.
The value of the state pension has increased dramatically over the last few years because of the triple lock – which sees it rise by the higher of 2.5 per cent, inflation, or wage growth, each year.
Because successive Chancellors have frozen the threshold at which people start to pay tax, the value of the state pension will exceed the zero rate personal allowance from 2027/28.
As some pensioners have other income streams, the OBR estimates 600,000 more will start paying tax from the next financial year, beginning in April.
The OBR document does add “much of this population is projected to pay only very small additional amounts of tax due to the freezes”.
It also adds that the government has pledged that those whose only income is the state pension won’t pay income tax in this Parliament (ie before 2029) but has yet to set out details.
It predicts that pensioners paying income tax will yield around £100m a year by 2030-31.
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