‘Retirement tax’ to hit extra ONE MILLION pensioners by 2023, bombshell research finds

The move would push pensioners who currently do not pay tax into the 20 per cent basic rate tax band.

Additionally, between one million and 1.5 million pensioners already paying income tax could be moved into a higher tax bracket.

This extension of the freeze, which was initially implemented by the Conservatives until 2027-28, would continue a trend that has already seen an extra 2.5 million pensioners brought into the tax net during the Tories’ 14 years in power.

The income tax threshold freeze means that as incomes rise with inflation, more pensioners will be pushed into higher tax bands. This measure is expected to raise around £7billion a year for the Government.

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The current tax-free threshold stands at £12,570. Income is taxed at 20 per cent above this amount, 40 per cent above £50,271, and 45 per cent above £125,140.

The state pension, which rises annually due to the triple lock, is set to reach £11,975 in April after a 4.1 per cent increase. This leaves only a small gap before pensioners hit the tax threshold.

Deloitte’s analysis suggests that by 2027, even pensioners relying solely on the state pension may have to pay tax on their income.

Jon Greer, head of retirement policy at Quilter, warned that low-income pensioners risk being caught in a stealth tax trap if the Chancellor extends the freeze.

“Thresholds that are meant to shield lower earners are stealthily morphing into a tax burden for those on the lowest incomes,” Greer said.

“This rumoured extension would mean that, by 2030, over one million pensioners could see their hard-earned savings chipped away with unexpected tax bills, making it increasingly difficult for them to manage their finances at a time when every penny counts.”

Greer emphasised the potential long-term impact, stating, “It highlights just how damaging this freeze could be if it continues beyond its current timeline.”

The move could leave Labour open to accusations of breaking a manifesto promise not to increase income tax, VAT or National Insurance.

With the new full state pension set to reach £11,975 in April, only a modest amount of additional income would push low-income pensioners past the frozen £12,570 tax-free threshold.

This situation could lead to unexpected tax bills for those who have never paid income tax before, Quilter claims.

Greer suggested that it could make financial planning more challenging for retirees who are already struggling with rising living costs.

A UK Government spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.”