Personal finance guru Martin Lewis has issued a new update for anyone with a State Pension and admitted ‘that does feel unjust’. Speaking on his new BBC Podcast, Mr Lewis spoke out amid concerns UK people with a full new State Pension will soon be paying tax.
The worries arose after Chancellor Rachel Reeves froze income tax thresholds until 2031, meaning millions more will be hit by tax increases due to inflation, causing ‘fiscal drag’ as even the poorest earners cross a key income level. The lowest tax threshold is £12,570 and anyone earning more than that will pay tax.
The issue arises because the triple lock – which increases State Pensions by a minimum of 2.5 per cent a year means that in 2027 it will go through that barrier. On his podcast, listener Jinx asked: “I have a tiny private pension £100 a month. That on top of the State Pension I get today puts me over the threshold for paying tax so I pay tax and have £7 deducted each month. Is that the tiny amounts the chancellor is talking about?”
Mr Lewis replied: “I suspect this is someone who saw the interview I did with the Chancellor on my TV show and which I put on social media. It was a really interesting one because I asked the Chancellor ‘we know that from 2027 someone on the full new State Pension will start to pay tax even with no other earnings’.
“And that’s because from April 2026 the full new State Pension is only about £25 below the personal allowance – the amount you can earn each year before you pay tax on it. And as the State Pension must rise by a minimum of 2.5 per cent because of the triple lock and the personal allowance is frozen until 2031 by definition from 2027, someone on the new full State Pension will be earning more than the personal allowance. Certainly, in 2028 and 2029, that will continue to happen even more so.
“So my concern when I asked the Chancellor about this, she’d mentioned something in the Budget about not having to do self assessments and I wanted to understand from an administrative basis how she was going to protect, and I asked the question because I had 6,000 questions come in, I asked the question from one of my viewers ‘my father is an 85-year-old with onset dementia, is he going to have to do a self assessment return’.”
Rachel Reeves’ answer surprised him at the time, Mr Lewsi explained: “The Chancellor answered, and I caught something in her answer, so I said ‘sorry, are you saying they won’t have to do the self assessment return, or are you saying that people won’t have to pay tax?’ And she said ‘no I’m saying that people who get the full new State Pension and have no other earnings will not have to pay tax in the terms of this Parliament.’
“What was fascinating was that in the Budget, that’s what she’d thought she’d said. But nobody picked up on it. Everybody thought they wouldn’t administratively do a self-assessment. But what she actually meant was they wouldn’t actually have to pay tax.
“I followed it up by saying ‘what about an edge case where someone who has the full new state pension and £50 a year nothing private pension. And she said ‘no guarantee is only for those people who have the full new State Pension’.”
The upshot was bad news for Jinx and people like her. He explained: “I’m afraid to say that in your case you’re a tiny bit over the threshold because you have other income, £100 a month, you will have to pay tax. 2 things the Chancellor said which I think is important to reiterate. One, she was talking from 2027 onwards, and 2 she said ‘we are working through how we will do this.’
“So the exact way it will work has not been formulated. In my head this did bring up a few issues. You could have somebody who has the new State Pension but doesn’t have the full new State Pension – they are a few years short – has a private pension but tops it up a little bit, is earning over the threshold but less than the full new State Pension but because it’s a mix of state pension and private pension would have to pay tax on it. That does feel a little bit unjust.
“You equally have the problem that there are some people on the old State Pension now who get the basic State Pension and the second SERPS pension on top whop are already over, just, on state pension income over the personal allowance.#”
Mr Lewis said he’s had a lot of questions after his interview with the Chancellor, but said it was not yet clear how it would all be put into place.
To listen to his podcast click here.
