Former chancellor set up a tax trap for the elderly. The new PM quickly shoved them into it.
Andy Burnham has finished the state pension job Rachel Reeves started (Image: Getty)
The state pension is turning into a total mess because of the longstanding freeze on the £12,570 tax-free personal allowance, which, thanks to Rachel Reeves, now runs until April 2031. While the allowance remains frozen, the state pension will keep rising under the triple lock, increasing each year by either consumer price inflation, earnings or 2.5%, whichever is highest. And that’s causing a tax headache for pensioners.
Today, the full new state pension is £12,547 a year, a fraction below the personal allowance. Even it it rises by the 2.5% backstop, the lowest amount possible, it would hit £12,861 next April. That’s £291 more than the personal allowance. It’s likely to even higher, as the Iran war and rising oil price threatens set to push up inflation. Between now and 2031, the state pension will continue to climb ever higher above the personal allowance.
Reeves’s solution to this conundrum was a quick fix. She promised that retirees whose only income comes from the state pension won’t pay income tax during this Parliament. It sounded reassuring, but opened a nasty can of tax worms. The UK has two state pension systems running side by side. Millions who reached state pension age from April 6, 2016, receive the new state pension. If they have absolutely no other taxable income, Reeves’s pledge just about works for them.
But as I explained on Saturday, older retirees are in a different position. They get the basic state pension, worth significantly less, but many also receive additional state pension through SERPS or the state second pension. Those extra payments are taxable. If they push total state pension income above the £12,570 personal allowance, the pensioner becomes liable for income tax on the state pension above that threshold, even if they have no other income at all.
The result? Only one in 20 pensioners will actually benefit from Reeves’s supposed solution. Burnham didn’t create this mess. But he’s inherited it and chosen to push it through. And now there’s a second problem.
Incredibly, Reeves’s quick fix will punish those who did the responsible thing and saved money for retirement, by hitting them with a thumping tax charge. Low income pensioners with just a tiny amount of savings now face a vicious cliff edge. The moment they earn any income from a private pension, savings interest or part-time job, then Reeves and Burnham’s tax-free pledge collapses.
They won’t just pay tax on that extra source of income. They’ll also face tax on the slice of their state pension above the frozen personal allowance.
By 2029-30, analysts at retirement specialists LCP have estimated that the full new state pension could be worth £13,671. That’s £1,101 over the personal allowance. There’s still no tax bill for new state pensioners who have no other sources of income. But it’s a different story for those who do. Just £1 of additional income on top could trigger a punitive tax bill of around £220.
Reeves’s plan created one of the sharpest cliff edges in the entire UK tax system. And now Burnham and new Chancellor John Healey have kicked pensioners over it.
For years, governments urged people to save for retirement and reduce pressure on the state. Reeves has somehow created a system where pensioners who saved modestly could end up worse off than those who saved nothing at all. Now Burnham has made sure it happens.
The new PM has a lot on his plate, and there is no easy solution to the mess Reeves has conjured up. Burnham will hope pensioners don’t notice. But every year the tax thresholds remain frozen, the impact on low income pensioners with modest savings will grow. Reeves set up this disaster. Burnham just applied the finishing touch.
What Exactly Is Changing Under the Triple Lock?
To understand the controversy, it is important to examine how the Triple Lock currently works.
Introduced in 2011, the policy guarantees that the state pension increases annually by whichever is highest out of three measures:
- Inflation, measured by the Consumer Prices Index.
- Average earnings growth.
- A minimum annual increase of 2.5 per cent.
This mechanism was designed to prevent pensioners from falling behind working people and to protect retirement incomes against rising living costs.
However, Burnham has announced that the existing arrangement will remain in place only until April 2030.
From that date, the government proposes an adjusted system under which pensions will rise by at least inflation or 2.5 per cent, whichever is higher. The earnings link will operate when necessary to maintain the pension’s value relative to average earnings over time, rather than automatically providing the highest of all three measures every year.
This is a significant change because pension increases could be lower in years when earnings grow faster than inflation and 2.5 per cent.
The government says pensioners will continue to receive annual increases and that their pensions will not lose their value relative to earnings over the longer term. <Cite refs={[“turn263683view0″,”turn263683view2”]}/>
Why Is Burnham Making This Decision?
The government’s main argument is that the existing Triple Lock is becoming increasingly expensive and difficult to maintain.
State pension expenditure is already one of the largest areas of public spending. As Britain’s population ages and more people enter retirement, the financial pressure on the system is expected to increase.
Burnham wants to use the savings generated by reforming the Triple Lock to help establish a new National Care Service.
Under his proposals, older people would receive free personal care based on their needs rather than their ability to pay.
This could include assistance with everyday activities such as eating, bathing and using the toilet.
The government estimates that changing the pension system could save approximately £15 billion annually by the end of the 2030s, increasing to £50 billion a year by 2050.
Ministers argue that the reform would allow Britain to provide better long-term support for older people without relying entirely on additional borrowing. <Cite refs={[“turn263683view0″,”turn287984search1”]}/>
However, critics question whether the projected savings will be sufficient to finance the proposed care service.
The Institute for Fiscal Studies has also highlighted uncertainty surrounding the precise financial impact of the reform.
Is Burnham Repeating Rachel Reeves’ Mistakes?
The comparison with Rachel Reeves is particularly interesting because pensioner support has already been a politically sensitive issue for Labour.
In 2024, Reeves introduced restrictions to the Winter Fuel Payment, removing universal payments for millions of pensioners and limiting eligibility largely to those receiving qualifying means-tested benefits.
The decision generated considerable opposition, particularly among older people who were struggling with heating bills and the rising cost of living.
The government subsequently faced pressure to reconsider its approach.
Now, Burnham’s proposed Triple Lock reform has created another debate about whether Labour is placing too much emphasis on reducing public expenditure at the expense of pensioner security.
Critics argue that older people should not repeatedly become the focus of government savings measures after spending decades contributing to the economy.
However, there is also an important difference between the two policies.
The Winter Fuel Payment restrictions affected immediate eligibility for a particular benefit, whereas Burnham’s proposal concerns the long-term method used to increase the state pension from 2030.
Both policies have financial consequences for older people, but they operate through different mechanisms.
What Do Pensioners Think?
For many retired people, the Triple Lock represents more than a government spending policy. It is an important guarantee that their retirement income will not fall significantly behind the cost of living.
Many pensioners rely heavily on the state pension, particularly those who have limited private savings or occupational pension income.
A change in the annual increase mechanism could therefore affect their financial planning.
The concern is especially relevant for people approaching retirement who want to understand how much income they can expect during the next 20 or 30 years.
Supporters of maintaining the existing Triple Lock argue that the government should find alternative ways to finance social care.
Some have suggested higher taxes on wealthier individuals, changes to other areas of public spending or greater efficiency within government departments.
Others argue that the current system needs reform because future generations of taxpayers may struggle to finance an increasingly expensive pension system.
These competing arguments demonstrate that the issue involves difficult choices about fairness between generations.
Opposition Parties Respond
The Conservative Party has criticised Burnham’s announcement, arguing that the proposal could reduce the financial security of pensioners.
Conservative chairman Kevin Hollinrake described the change as taking money from pensioners and using it elsewhere in the public sector.
Reform UK has also pledged to defend the existing Triple Lock, presenting pension protection as an important commitment to older voters.
Meanwhile, criticism has emerged from parts of the political left.
Unite general secretary Sharon Graham has argued that the government should consider alternative ways of raising revenue rather than changing pension arrangements.
Green Party leader Zack Polanski has also questioned why pensioners should bear the burden when other sources of taxation could be considered. <Cite refs={[“turn287984search2″,”turn287984search1”]}/>
Will Pensioners Actually Become Poorer?
This is perhaps the most important question in the entire debate.
The answer is not necessarily straightforward.
Under Burnham’s proposed system, the state pension would continue to rise annually. It would also receive protection against inflation and would have a mechanism to maintain its value relative to earnings over time.
Therefore, it would be inaccurate to say that the government plans to freeze pensions or reduce the amount pensioners currently receive.
However, the removal of the automatic annual earnings link could mean that pensioners receive smaller increases in certain years compared with the existing Triple Lock.
Over several decades, differences in annual increases can accumulate and affect total retirement income.
The impact will depend on future inflation, wage growth, economic performance and how the government implements its proposed safeguards.
The Guardian’s analysis of the policy explains that the original Triple Lock helped increase the state pension from approximately 16 per cent of average earnings before its introduction to around 30 per cent of median full-time pay.
Maintaining that relative value will therefore be an important test of the government’s new approach. <Cite refs={[“turn263683view2”]}/>
Conclusion: A Difficult Choice for Britain’s Future
Andy Burnham’s proposed reform of the Triple Lock has opened a major debate about the future of retirement in Britain.
Supporters argue that the current system is becoming increasingly expensive and that reform could help finance a National Care Service providing essential support to older people.
Critics, however, believe that changing the pension guarantee risks undermining confidence among people who depend on the state pension for their financial security.
The comparison with Rachel Reeves reflects wider concerns about Labour’s approach to pensioner support and public spending.
Nevertheless, the proposed changes are not due to take effect until April 2030, and the existing Triple Lock is intended to remain in place throughout the current Parliament.
Ultimately, the government must demonstrate that its new arrangements can protect pensioners against inflation, maintain their living standards and provide adequate support for those who need social care.
The real question is whether Britain can create a sustainable pension system without placing an unfair financial burden on older generations.
For millions of pensioners, the answer will matter far more than any political announcement.