Government Response

The Government responded to this petition on Monday 31st July 2023

The Personal Allowance is high enough that pensioners whose sole income is the new or basic State Pension do not pay income tax. The State Pension is designed to replace income and so is taxable.

The Government is committed to ensuring that older people are able to live with the dignity and respect they deserve.

Income earned through employment is taxable. In general, benefits that are designed to replace income are taxable and the same applies to income from the State Pension.

Income tax is due on an individual’s total income above the Personal Allowance (PA), currently £12,570. Total income could include: the State Pension (the basic State Pension, the new State Pension, and the Additional State Pension); other taxable benefits; a private pension (workplace or personal); any other income, such as money from investments, property, or savings.

It is important to note that the PA is currently set at a level high enough to ensure that those pensioners whose sole income is the new State Pension or basic State Pension do not pay any income tax.

The Government has nearly doubled the PA since 2010 meaning around 30% of individuals do not pay any tax. If the PA had been uprated by inflation every year since 2010-11, it would be £9,655 in 2023-24, which is £2,915 lower than its current level of £12,570.

Due to the significant real term increases to the PA, it is estimated there will be over 3 million people taken out of tax by 2023-24, compared to the threshold rising in line with inflation from 2010-11.

The PA is high by international standards – it is one of the most generous personal tax allowances in the OECD and highest in the G7.

Removing income tax from the State Pension would add complexity to the tax system and those paying higher rates of tax would receive the greatest benefit. Lower-earning individuals with income below the higher rate threshold would benefit less and those earning below the PA would not benefit at all.

In April this year, the Government increased the State Pension by 10.1%, in line with inflation. This delivered the biggest ever cash increase in the State Pension.

Support available beyond the State Pension includes: Winter Fuel Payments, which are £200 per household if the oldest person is less than 80 years old, or £300 per household if they are above 80; free eye tests; NHS prescriptions; and free bus passes. Some pensioners may also qualify for means tested benefits including Pension Credit and Housing Benefit.

As part of our commitment to supporting pensioners, the Government implemented targeted cost of living measures by allocating a £300 Cost of Living Payment to over 8 million pensioner households for both the winter of 2022 and 2023. Pensioners also benefited from universal energy support provided this year and last which has paid for almost half of the typical family’s energy bill from October-June through the energy price guarantee and energy bills support scheme. Taken together, the Government has provided total support of over £94bn over 2022-23 and 2023-24 – an average of over £3,300 per household.

The Government keeps all aspects of the tax system under review and any decisions on future changes will be taken by the Chancellor in the context of the wider public finances.

HM Treasury