A Labour peer has urged the UK Government to review the decision to freeze the personal allowance at £12,570 until 2026 as it could see future New State Pension payments exceed the income threshold resulting in more people paying tax in retirement.
Lord Davies of Brixton warned that if no changes are made, the State Pension and personal tax allowance are on course to “collide” by the 2027-28 financial year.
During the second reading of the Finance Bill on Wednesday, Lord Davies said that more State Pensioners will start to receive a “brown envelope in the post” with an unpaid tax demand.
He suggested that one solution could be to add State Pensions to the PAYE system, which would see retirees who exceed the personal allowance threshold pay tax directly from their payments throughout the year.
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