HMRC confirms ยฃ1 ‘cliff edge’ payment for pensioner tax exemption | Politics | News
HM Revenue and Customs has confirmed a “cliff edge” payment that could wipe certain tax exemptions for pensioners. A state pension tax exemption announced by the Government will help just 5.4% of eligible pensioners, according to pension consultants LCP. Their findings show that only one in 18 will benefit from the proposed reforms to the pension scheme, set to come into law in the 2027/28 tax year.
No pensioner who reached state pension age before April 6, 2016 – those born before April 6, 2016 – is expected to qualify for the new slate of pension reforms.
Chancellor Rachel Reeves announced the changes and has faced criticism from experts who believe the current draft will do more harm than help to pensioners.
Former pensions minister and LCP partner Steve Webb believes the Budget will cause major discrepancies for many pensioners. He told The Herald: “Two separate policies – triple lock uprating of the state pension and freezing of tax thresholds – will collide next year.
“From 2027 onwards, someone with just the new state pension and no other income will start getting annual tax bills from HMRC. The proposed solution is deeply flawed. It discriminates against those on the old state pension system, even if they have an identical income to someone on the new system.”
LCP pensions expert Alasdair Mayes outlined that the current proposal could also see some pensioners lose their tax-exempt status if they receive a payment as little as ยฃ1.
LCP experts warned that the scheme contains sharp “cliff edges” that may punish those who make even a small amount of additional income. Receiving as little as ยฃ1 of taxable income outside the state pension could mean losing the entire tax exemption. This could affect those with:
- Small workplace pensions
- Savings income
- Tiny annuities
- Automatic enrolment pension pots
LCP pensions expert Alasdair Mayes said the plans risk adding complexity rather than simplifying the system. This is another example of a seemingly well-intentioned policy announcement adding complexity and unfairness in the tax system,โ Mayes said. “A simple and transparent tax system would be a benefit to all.”
