Former pensions minister Sir Steve Webb has issued a warning as thousands of pensioners have now found their retirement income has gone above the frozen tax thresholds
At least 140,000 pensioners are set to receive a tax demand from HMRC for the first time since they retired.
Thousands of pensioners have now found their retirement income has gone above the frozen tax thresholds for the first time. The full new state pension rose by 10% in April 2023 to £10,636.60 a year, followed by another rise of 8.5% in April 2024 which took it to £11,541.90 a year.
In comparison, the personal allowance before you start paying tax is £12,570 a year – so it means thousands of people who have a private pension alongside the state pension have now been pushed into paying tax on their retirement money for the first time.
HMRC confirmed this week that is writing to around 560,000 people who have taxable income but are not registered through self-assessment or PAYE, including 140,000 pensioners who will receive a simple assessment notice for the first time. This is for tax due for income they received between April 2023 and April 2024.
A simple assessment is a way for HMRC to collect tax that wasn’t deducted straight out of your income. HMRC said anyone receiving a simple assessment will usually have until January 2025 to pay the bill, and they should be able to pay in instalments.
Sir Steve Webb, former pensions minister and partner at pension consultants LCP said: “It is rarely good news to receive a letter from HMRC and in this case 140,000 pensioners will be getting a tax demand in the next few weeks for the first time since they retired. The size of the bill will often be relatively small at first, but this could grow year-on-year if the current policy of freezing tax thresholds continues.
“The recipients of these letters are not well off, and some will have a living standard below the pensions industry’s assessment of the ‘minimum’ income needed for a basic quality of life. There is also a risk that scammers will catch on to the fact that these letters are being sent out and come up with fake letters trying to get money out of pensioners.“
