State Pension at Risk as Rachel Reeves’ Tax Raid Targets Retirees in March

Rachel Reeves is in a tight spot ahead of her Spring Statement on 26 March, trying to fix the financial mess left by her disastrous autumn Budget. And let’s be honest—taxpayers, especially pensioners, aren’t going to like what’s coming.

Despite raking in a staggering £70 billion through taxes and borrowing, the numbers still don’t add up. Reeves is out of “fiscal headroom” and is now staring down two unappealing options—raising taxes again or slashing spending. Realistically, she’ll probably end up doing both, in what could be a fresh wave of austerity. One major move that’s on the table? Extending the income tax threshold freeze—something she promised not to do just a few months ago, reported the Express.

Back in 2021, the Tories froze the personal allowance at £12,570 and later extended the freeze until 2028. With higher-rate tax bands locked in as well, a jaw-dropping 7.7 million people will be paying more tax by the end of the freeze—pumping an extra £45 billion into the Treasury’s coffers. In October, Reeves vowed not to drag the freeze beyond 2028, calling it unfair to working people. But now, it looks like she might have to go back on her word.

Paul Johnson, head of the Institute for Fiscal Studies (IFS), warns that extending the freeze for another two years—until 2030—is “right at the top of the policy options being considered.” And if that happens, workers could see an extra £4,000 vanish from their earnings in tax. But it’s not just workers who’ll take the hit—pensioners are set to suffer too.

Freezing the personal allowance means millions more retirees will have to pay tax on their state pensions, even if they have no other source of income. From April, the full new state pension will rise to £11,973 a year, which is just £597 below the personal allowance threshold. Even a tiny bit of extra income—maybe from savings or a small private pension—could push pensioners into paying tax.

If the state pension increases by just 5% more, pensioners getting the full amount will automatically have to start handing over a cut to HMRC. That could happen as soon as April 2026 and almost certainly by 2027. This is the nasty side effect of the tax freeze, and it’s turning into a real headache for retirees.

Four years ago, only 500,000 pensioners had to pay tax on their state pension—about one in 20. By last year, that number had shot up to 1.2 million (or 13%), according to Age UK. If Reeves extends the freeze to 2030, a staggering 3.6 million pensioners—around two in five—will be taxed on their state pension.

It’s a bizarre situation—the DWP hands out pension payments while HMRC takes a chunk right back. What’s the point? And let’s not forget that plenty of pensioners already pay tax on private and workplace pensions, not to mention their savings. If Reeves slashes the Cash ISA allowance, it could get even worse.

Already, 600,000 pensioners who previously didn’t have to pay tax have been dragged into the system because of the frozen thresholds. Many of them are elderly and vulnerable, and for some, the tax bill comes as a nasty shock.

To make matters worse, some pensioners will even have to start filing self-assessment tax returns for the first time in their 70s or 80s. Imagine trying to navigate that paperwork in your later years—it would be a nightmare. The Tories had already set things on this course, but if Reeves extends the freeze, almost no one will escape the tax grab.