Healey’s pension tax shield to hit thousands of retirees with 53% rate

Key facts

• Low-income pensioners may face an effective 53% tax rate on part of their retirement income.
• The full new state pension is projected to be £13,036 annually from April 2027.
• The standard personal allowance is frozen at £12,570 until 2030-31.
• A new, higher personal allowance for some low-income pensioners is reportedly planned.
• The policy could create a 'cliff-edge' problem for those with small private incomes.

Chancellor John Healey is expected to introduce a new personal allowance for low-income pensioners in an upcoming budget, aiming to prevent them from paying income tax on their state pension. However, the move could inadvertently lead to an effective tax rate of 53% on certain retirement income for thousands of retirees, according to reports. The standard personal allowance has been frozen at £12,570 since 2021, while the full new state pension is projected to reach £13,036 by April 2027, creating a widening gap.