Former chancellor set up a tax trap for the elderly. The new PM quickly shoved them into it.
Today, the full new state pension is £12,547 a year, a fraction below the personal allowance. Even it it rises by the 2.5% backstop, the lowest amount possible, it would hit £12,861 next April. That’s £291 more than the personal allowance. It’s likely to even higher, as the Iran war and rising oil price threatens set to push up inflation. Between now and 2031, the state pension will continue to climb ever higher above the personal allowance.
Incredibly, Reeves’s quick fix will punish those who did the responsible thing and saved money for retirement, by hitting them with a thumping tax charge. Low income pensioners with just a tiny amount of savings now face a vicious cliff edge. The moment they earn any income from a private pension, savings interest or part-time job, then Reeves and Burnham’s tax-free pledge collapses.
Reeves’s plan created one of the sharpest cliff edges in the entire UK tax system. And now Burnham and new Chancellor John Healey have kicked pensioners over it.
For years, governments urged people to save for retirement and reduce pressure on the state. Reeves has somehow created a system where pensioners who saved modestly could end up worse off than those who saved nothing at all. Now Burnham has made sure it happens.
The new PM has a lot on his plate, and there is no easy solution to the mess Reeves has conjured up. Burnham will hope pensioners don’t notice. But every year the tax thresholds remain frozen, the impact on low income pensioners with modest savings will grow. Reeves set up this disaster. Burnham just applied the finishing touch.
