The debate around tax fairness for older people has returned to the spotlight after renewed calls for a higher personal tax allowance for pensioners. Campaigners, charities, and some MPs have urged the UK Government to raise the personal tax allowance for pensioners to £25,140 — a figure that matches the full new State Pension.
Supporters argue that pension income should not be taxed at all when it simply keeps pace with the cost of living. The government has now issued a response, but many pensioners remain unconvinced.
This article explains what the £25,140 proposal means, how the government has reacted, and what pensioners should realistically expect next.
Why £25,140 Matters to Pensioners
The £25,140 figure is not random. It represents the annual value of the full new State Pension once recent increases are applied.
Campaigners argue that if the State Pension is designed to provide a basic standard of living, then taxing it undermines its purpose. For many pensioners, paying income tax does not feel like contributing from surplus income — it feels like losing money they rely on for essentials.
At present, many pensioners are pushed into paying tax simply because the State Pension has risen faster than tax thresholds.
Current Personal Allowance Rules Explained
The standard personal tax allowance in the UK currently stands at £12,570. Anyone earning above this level — including through pensions — may have to pay income tax.
This allowance has been frozen for several years. While wages and pensions have risen, the allowance has not, pulling more people into the tax system. This effect is often referred to as “fiscal drag”.
For pensioners, this means:
- The State Pension alone can push them close to the tax threshold
- Any small private pension can trigger a tax bill
- Many end up paying tax for the first time in retirement
Growing Pressure From Campaign Groups
Several pensioner advocacy groups have argued that the system is no longer fair. Their main points include:
- Pensioners have already paid tax during their working lives
- State Pension increases are designed to protect living standards, not create tax liabilities
- Older people are disproportionately affected by frozen thresholds
Campaigners say aligning the personal allowance with the full State Pension would remove millions of pensioners from income tax altogether.
What the Government Has Said
In its response, the government acknowledged concerns raised by pensioners and MPs but stopped short of committing to any change.
Officials emphasised that the personal allowance already provides “significant protection” from tax and noted that pensioners benefit from other support measures, such as:
- Pensioner Cost of Living Payments
- Winter Fuel Payment
- Free bus travel and TV licences for eligible households
The government also pointed to the cost of raising the allowance to £25,140, which would run into tens of billions of pounds annually.
Treasury Concerns Over Cost
One of the biggest obstacles to raising the allowance is the impact on public finances. Increasing the personal allowance for pensioners alone would reduce tax revenue significantly.
The Treasury has warned that such a move could require:
- Higher borrowing
- Cuts elsewhere
- Or tax rises for working-age people
This has made ministers cautious, especially during a period of economic uncertainty.
Why Pensioners Feel the System Is Unfair
Despite the government’s explanation, many pensioners feel overlooked.
A common frustration is that State Pension increases are celebrated publicly, only for part of the rise to be clawed back through tax. For someone living on a fixed income, even modest tax bills can cause anxiety.
Pensioners often point out that they have limited ability to increase income, unlike working-age earners who can take on extra hours or change jobs.
Impact of Frozen Thresholds on Older People
The freeze on the personal allowance has had a growing impact year after year.
As the State Pension rises, more pensioners cross the £12,570 threshold. This has led to:
- First-time tax bills for retirees
- Confusion over PAYE codes
- Unexpected deductions from private pensions
Some pensioners only discover they owe tax after receiving a letter from HMRC, adding stress and uncertainty.
Political Reaction From MPs
Several MPs have backed calls for reform, arguing that the tax system has failed to adapt to an ageing population.
They have suggested alternatives, including:
- A higher personal allowance for pensioners only
- A partial exemption for State Pension income
- Automatic tax-free treatment for the State Pension
So far, these ideas have not been adopted, but pressure continues to build.
Is a £25,140 Allowance Likely Soon?
At present, a full increase to £25,140 appears unlikely in the short term.
The government has given no indication that it plans to introduce a separate allowance for pensioners. Instead, ministers have focused on targeted benefits and support payments rather than structural tax reform.
However, future reviews of tax thresholds could reopen the debate, especially if public pressure increases.
What Pensioners Can Do Now
While policy changes remain uncertain, pensioners can still take steps to manage their tax position:
- Check tax codes regularly to ensure accuracy
- Claim age-related allowances and reliefs where eligible
- Use pension flexibility options carefully
- Seek free guidance from charities or advisers
Small adjustments can sometimes reduce or eliminate unexpected tax bills.
Why This Issue Is Not Going Away
The UK population is ageing, and more people are relying heavily on pension income. As a result, the tension between pension rises and frozen tax thresholds will continue.
Campaigners believe the issue will remain politically sensitive, particularly during election periods when older voters play a crucial role.
Even if £25,140 is not adopted, some form of reform may eventually become unavoidable.
The Bigger Picture for Retirement Income
This debate highlights a broader question: how retirement income should be taxed in modern Britain.
Many argue the system was designed for a time when pensions were smaller and private income was more generous. Today’s reality is different, with millions relying almost entirely on the State Pension.
Without changes, more pensioners may find themselves paying tax simply to maintain a basic standard of living.
Final Thoughts
The government’s response to calls for a £25,140 personal tax allowance has been cautious, focusing on cost and existing support rather than committing to reform.
For pensioners, the disappointment is understandable. While the proposal may not be adopted soon, the growing pressure shows that concerns around fairness and affordability are gaining attention.
As State Pension levels continue to rise, the question of how much pension income should be taxed is likely to remain firmly on the political agenda.