People over State Pension age could see income tax threshold increase to £20,000

Linda Howard
·4-min read

More than 12,000 people have signed an online petition 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”. The proposal is now entitled to a written response from the UK Government - most-likely from The Treasury - as it has now soared past the 10,000 signature threshold.

The UK Government recently announced the Personal Allowance will remain frozen at £12,570 until the start of the 2028/29 financial year. However, petition creator Alan David Frost argues 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”.

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The ‘raise the income tax personal allowance from £12570 to £20000’ 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.”

At 100,000 signatures, the petition would be considered by the Petitions Committee for debate in Parliament. You can read it in full here.

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.

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.

State Pension and tax

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 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

State Pension payments will rise on April 7, however, people will not see an immediate increase as the contributory benefit is paid in arrears.

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.