New call to increase personal tax allowance to £20,000 to give all pensioners ‘decent income’

Linda Howard
·4-min read

A new online petition is calling on the UK Government to increase the personal tax allowance from £12,570 to £20,000 to help people on a low income “get off benefits and allow pensioners a decent income”. Petition creator Alan David Frost argues that it is “abhorrent to tax pensioners on their State Pension when it is over the personal allowance” threshold and says the increase would “inject more cash into the economy”.

The UK Government recently announced that the Personal Allowance will be frozen at £12,570 until the start of the 2028/29 financial year. However, last month, Liberal Democrat MP Ben Maguire urged Chancellor Rachel Reeves to make an assessment of the potential merits of increasing the tax allowance for people over State Pension age to £15,000.

READ MORE: HMRC confirms more than one million people face £100 tax fine

READ MORE: New Winter Fuel Payment update for claims made before cut-off date in December

In a written response, Treasury Minister James Murray MP explained how the Labour Government “is committed to keeping taxes as low as possible for pensioners while ensuring fiscal responsibility”, but did not respond directly to the proposal for an assessment on increasing the income tax threshold.

The ‘raise the income tax personal allowance from £12570 to £20000’ petition has been posted on the petitions-parliament website. At 10,000 signatures of support it is entitled to a written response from the UK Government, at 100,000 it would be considered by the Petitions Committee for debate in Parliament - view it online here.

The petition states: “We think this would help low earners to get off benefits and allow pensioners a decent income.

“We think it is abhorrent to tax pensioners on their State Pension when it is over the personal allowance. We also think raising the personal allowance would lift many low earners out of benefits and inject more cash into the economy creating growth.”

The full New State Pension is currently worth £11,502 in the 2024/25 tax year and will rise to £11,973 in 2025/26.

This leaves just £1,068 in the current year before the tax threshold is exceeded and £597 in 2025/26.

The most important thing to remember is that someone on the full New State Pension will not pay income tax, but older people with additional income through employment, private or workplace pensions, might need to pay tax.

For most people, this would be paid automatically through PAYE on employment and tax on private pensions. Anyone who doesn’t pay tax automatically pays tax through deductions, would receive a tax bill from HMRC the following summer to be paid by January in the next year.

There has been a fair bit of speculation on the number of pensioners who will pay tax, but currently of the 12.9 million State Pensioners across the UK, nearly 8m (62%) already pay some tax in retirement, so this isn’t something new.

And with auto-enrolment in the workplace - now in its 13th year - more people will benefit from increased income in retirement and will probably pay tax - which will typically be deducted from their private pension.

It's important to understand any tax to be paid in retirement is based on the amount of income earned above the threshold - not the total additional income. For example, if someone has a total annual income of £13,000, they will pay tax on £430 - which is the amount above the £12,570 threshold.

Those affected would then have to pay HMRC 19 per cent of their income above the threshold, which is the starter rate of tax in Scotland (20% in England).

Income rates and bands - Scotland

  • £12,571 to £14,876 - 19%, Starter rate

  • £14,877 to £26,561 - 20%, Scottish basic rate

  • £26,562 to £43,662 - 21%, Intermediate rate

  • £43,663 to £75,000 - 42%, Higher rate

Income rates and bands - England

  • £12,571 to £50,270 - 20%

  • £50,271 to £125,140 - 40%

  • over £125,140 - 45%

State Pension payments 2025/26

The DWP will publish the full list of State Pension and benefit uprated payments shortly, so far they have only confirmed the New and Basic State Pension rates, not additional elements (which are rising by 1.7%).

Full New State Pension

  • Weekly payment: £230.25 (from £221.20)

  • Four-weekly payment: £921 (from £884.80)

  • Annual amount: £11,973 (from £11,502)

Full Basic State Pension

  • Weekly payment: £176.45 (from £169.50)

  • Four-weekly payment: £705.80 (from £678)

  • Annual amount: £9,175 (from £8,814)

To check your own future State Pension payments, use the online forecasting tool on GOV.UK here.

Latest stories