{"id":601271,"date":"2025-11-29T12:32:17","date_gmt":"2025-11-29T12:32:17","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/601271\/"},"modified":"2025-11-29T12:32:17","modified_gmt":"2025-11-29T12:32:17","slug":"rachel-reeves-slammed-for-means-testing-state-pension-with-new-two-tier-retirement-tax","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/601271\/","title":{"rendered":"Rachel Reeves slammed for ‘means testing state pension’ with new two-tier retirement tax"},"content":{"rendered":"

Chancellor Rachel Reeves faces mounting criticism over plans that critics say amount to backdoor means-testing of the state pension through a controversial two-tier tax system set to take effect from April 2027.<\/p>\n

The Chancellor’s proposal would create a divide between pensioners who rely exclusively on state pension income and those with any additional retirement savings, however modest.<\/p>\n

Pensions expert Tom McPhail condemned the approach as “means-testing by proxy”, arguing the government’s decision stems from political fear rather than sound fiscal reasoning.<\/p>\n

“The government is not doing this because it makes fiscal or practical sense, or is fair or sensible: it is doing it because it is so frightened of crossing that totemic threshold of pensioners paying income tax on the state pension because they decided to freeze it,” McPhail said.<\/p>\n

Under the Treasury’s proposed system, retirees drawing only the state pension would avoid income tax even when payments exceed the frozen \u00a312,570 personal allowance threshold from April 2027 onwards.<\/p>\n

The full state pension rises to \u00a312,548 this April through the triple lock mechanism, which guarantees increases based on the highest of inflation, wage growth or 2.5 per cent.<\/p>\n

By 2027, a minimum 2.5 per cent rise would push payments to \u00a312,862, breaching the tax-free threshold for the first time.<\/p>\n

Yet pensioners with any additional income face tax demands on all earnings above \u00a312,570, including both their private pension income and the portion of state pension exceeding the threshold.<\/p>\n

The Treasury has confirmed that exemptions apply exclusively to those whose “sole income is the basic or new state pension”.<\/p>\n

Former Liberal Democrat pensions minister Sir Steve Webb warned the policy would generate “all sorts of anomalies, cliff-edges and unfairnesses”, particularly affecting those with modest retirement savings.<\/p>\n

\"Rachel<\/p>\n

Rachel Reeves slammed for ‘means testing state pension’ with new two-tier retirement tax<\/p>\n

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GETTY<\/p>\n

“This is taxing people who have just got a little bit of private saving more heavily,” Mr Webb, now a partner at consultancy LCP, stated.<\/p>\n

He added: “There is a risk of a two-tier system where people on the new state pension are protected whilst people on the old system and whose total pension is exactly the same are not protected.<\/p>\n

There are already more than two million pensioners on the old state pension system whose pension is over the tax threshold, but no government has ever cared about this,”<\/p>\n

The disparity extends to those receiving state earnings-related pension scheme (Serps) payments, with uncertainty surrounding their eligibility for exemptions.<\/p>\n

LATEST DEVELOPMENTS:<\/strong><\/p>\n

\"Couple<\/p>\n

Experts warn this is taxing people who have just got a little bit of private saving more heavily<\/p>\n

| GETTY<\/p>\n

The proposals risk creating perverse incentives for retirement planning, according to industry experts who fear pensioners may withdraw modest savings prematurely to avoid tax complications.<\/p>\n

Mike Ambery from Standard Life warned: “There are undoubtedly questions of fairness for those receiving small incomes from elsewhere who may end up paying a small amount of tax.”<\/p>\n

He noted that “pre-retirement age poverty is on the rise and a system like this would give people a small incentive to take any modest pension pots early.”<\/p>\n

Sir Steve Webb echoed these concerns, suggesting the policy “would provide an incentive for people to cash out their modest pension pots rather than turn them into regular income.”<\/p>\n

\"Pension<\/p>\n

The Chancellor’s plan would benefit approximately one million pensioners from a total exceeding 13 million retirees<\/p>\n

| GETTY<\/p>\n

He specifically warned against discouraging annuity purchases, where retirees exchange their savings for guaranteed lifetime income.<\/p>\n

The Chancellor’s plan would benefit approximately one million pensioners from a total exceeding 13 million retirees, according to Mr Webb’s estimates.<\/p>\n

Office for National Statistics data from 2023 indicated roughly 1.2 million retired households were “mainly reliant” on state pension income.<\/p>\n","protected":false},"excerpt":{"rendered":"Chancellor Rachel Reeves faces mounting criticism over plans that critics say amount to backdoor means-testing of the state…\n","protected":false},"author":2,"featured_media":601272,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[51,474,1232,617,2499,285,619,512,1786,16,3106,15],"class_list":{"0":"post-601271","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-money","11":"tag-pensions","12":"tag-personal-finance","13":"tag-politics","14":"tag-rachel-reeves","15":"tag-sgg","16":"tag-state-pension","17":"tag-uk","18":"tag-uk-politics","19":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115633005739195936","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/601271","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=601271"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/601271\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/601272"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=601271"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=601271"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=601271"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}