economy
Former pensions minister issues ‘£560 penalty’ warning
Older workers who put off claiming their state pension could be hit with tax bills of up to £560 that those who take their pension immediately will avoid, under a loophole in Labour's planned tax protection for pensioners.
TL;DR
- Labour's planned tax protection for pensioners may inadvertently create a £560 tax penalty for individuals who defer claiming their state pension.
- Those who continue working and delay their state pension may face tax bills, while those who claim immediately could pay no income tax.
- The problem is projected to intensify from April 2027 when the full new state pension is expected to exceed the £12,570 personal allowance.
- Deferring the state pension increases the eventual payment but can lead to a tax disadvantage compared to immediate claims.
- Approximately 42,000 people claimed a deferred state pension in 2023-24, with a significant number having deferred for five years or more.
- The tax exemption is expected to benefit a limited portion of state pensioners, excluding those with additional income sources or certain pension types.