Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group said: “The Government’s decision to extend the freeze on income tax thresholds until 2031 represents one of the most significant stealth tax rises in recent years. Originally introduced as a temporary measure, the freeze - combined with wage growth and inflation - will steadily push more earners into higher tax bands, reducing take-home pay and increasing the importance of tax-efficient saving. For pensioners, the picture is evolving. April’s increase will bring the full new State Pension to £12,547.60 per year, just below the frozen Personal Allowance of £12,570. From 2027–28, the State Pension is expected to exceed the allowance, meaning many retirees could technically owe income tax on the State Pension alone. However, the Government has confirmed plans to remove the need for Simple Assessments for pensioners whose sole income is the basic or new State Pension without increments, easing the administrative burden for this group. Details of how this will work will be set out next year, but the aim is to prevent small tax bills and reduce complexity for those with no other income. Despite this, pensioners with even modest private savings or workplace pensions will still face tax liabilities, and the freeze underlines the importance of planning. The State Pension remains below Pensions UK’s minimum retirement living standard by around £1,000 a year, so additional saving is still essential. There’s also a risk that frozen thresholds discourage private saving, as any extra income becomes taxable immediately. Pensions remain tax efficient. Contributions attract tax relief at your marginal rate, meaning those moving into higher bands could benefit from greater relief. With thresholds now locked until 2031, reviewing your pension strategy and making the most of available allowances is more important than ever. Ultimately, while the freeze helps the Government meet fiscal targets, it highlights the need for individuals to stay engaged with their long-term finances. Taking stock of pension pots and investment choices today can be a powerful way to protect future income.”
Steven Cameron, Pensions Director at Aegon, said: “Extending the freeze to 2031 is a major blow for taxpayers. It means thresholds will have been fixed for an astonishing nine years, pulling millions more into paying tax, or paying at a higher rate. By stealth, this increases the tax burden albeit without any actual rise in headline rates. OBR projections were already predicting that by 2028, millions more would be paying income tax, with significant growth in higher and additional rate taxpayers. The 3-year extension will add further millions to this. For those moving into higher tax bands, paying extra income into a pension could soften the blow by securing 40% tax relief. Surprisingly, the Chancellor has said those with only the old or new state pension will not be subject to income tax even if their income exceeds the frozen personal allowance. From April 2027, the full new state pension will be at least £12,861, exceeding the £12,570 allowance, which would otherwise have triggered a tax charge of at least £58 a year. The extended freeze means both the excess and the potential tax bill would have risen annually, which would have been perceived as the government giving with one hand and taking with the other. By 2030/31 the tax bill might have risen to over £500 per year. It’s very welcome that the Chancellor has confirmed state pensioners with no other income will not face a tax charge even if their income exceeds the frozen thresholds.”
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