The personal finance expert was answering a question from a pensioner viewer on the Martin Lewis Money Show Live on ITV last night
Martin Lewis has issued a warning to state pensioners, alerting them that they could face paying tax for the first time. The personal finance expert addressed the concern whilst answering a viewer’s question on the Martin Lewis Money Show Live on ITV last night.
There are growing reports suggesting Chancellor Rachel Reeves will freeze income tax thresholds at next week’s Budget. The lowest tax threshold of £12,570 has remained frozen since 2021 – and Ms Reeves is reportedly considering extending this from 2028 for a further two years until 2030.
The freeze means some of the most financially vulnerable workers face taxation as soon as their earnings exceed £12,570 – and because it has remained static, inflation and rising wages mean millions more are now paying tax than would have been the case had it increased as normal.
During the ITV programme, Marie wrote in asking: “I am 67, a pensioner, and like many pensioners find the cost of living so high i need to get a part time job. What are the tax implications. Even though my state pension is less than £12,000 a year would I still be taxed on it, especially with the budget coming?”.
Mr Lewis clarified how the current low tax threshold operates: “Let’s be clear the state pension is taxable income and has always been taxable income. But most people can earn £12,570 a year without paying tax. The current new full state pension, and you’re 67, and you’ll be on the new state pension. Older people will be on the old state pension.”, reports Devon Live.
“The full amount is £11,900. The tax threshold is here. So if you only get the full state pension you don’t pay any tax. It’s going to go up in April to just below that tax threshold to about £12,500. You still won’t pay tax if you only get the state pension.”
He added there was a strong likelihood state pensioners would soon face tax for the first time: “The following year because the thresholds are frozen – and that freeze I’m afraid is likely to be extended for another couple of years – then it will probably be the first time that someone on a full state pension will pay tax on that income if they don’t earn anything else.”
Regarding whether Marie should work, he was clear it was worthwhile: “Now you’re asking me about working. I think the very likelihood is if you’re doing any form of work you’re going to go over that personal allowance and you will pay tax on your total income – on your state pension plus other earnings.
“But let’s just be really plain. You don’t pay tax on the whole amount. You only pay tax on the amount above the personal allowance. £12,570. Let’s say your total earnings are £15,000. That’s about £2,500 above the personal allowance. You’d pay 20 per cent on that. 20 per cent of £2,500 is £500. So for that extra work you do you make £2,500 and you take home roughly £2,000.
“The big message if you’re 67 or you’re just leaving school and you’re working is the more you earn, the more you take home. Yes tax comes off, but it’s never worth not working because of tax and thinking that I’ll earn less because of tax because you won’t . You’ll always earn more, the more you get paid, so if you need more money you’ll have to pay some tax, but at least you’ll take home more.”
Currently, anyone earning above £12,570 starts paying tax at the basic rate of 20 per cent. This threshold has remained frozen since 2021 and because of a process called ‘fiscal drag’, significantly more people are now paying tax – including some of Britain’s lowest earners.
Concerns are mounting that even those claiming the basic state pension could soon begin paying income tax under the ‘triple lock’ system. The State Pension is expected to increase by 4.8% in April 2026 because of the government’s triple lock guarantee.
This will push the full new State Pension from £230.25 to £241.30 per week (£12,548 per year), which sits just beneath the threshold.
Chancellor Rachel Reeves will allegedly extend the freeze on thresholds for a further two years until 2030 after scrapping her proposals to raise income tax in the budget, according to fresh reports, which suggested the decision could bring £8 billion into the Treasury.
A Treasury spokesperson said: “We do not comment on speculation around changes to tax outside of fiscal events.”
A petition on the Parliament website, which has already gathered over 21,000 signatures, could force the Treasury to clarify its position and consider a change. This could pile on the pressure ahead of the Budget and if it reaches 100,000 signatures, it could even spark a debate among MPs.
The petition, launched by Timothy Hugh Mason, states: “We want the government to introduce a new tax code for state pensioners, set at double the basic threshold. If this was implemented, pensioners would receive a higher tax-exempt limit, but wealthier pensioners would still pay tax.
“We think that people with small private or workplace pensions are currently being taxed unfairly.”
To support and view the petition click here.
