Pensioners face £200 State Pension slash under new Rachel Reeves tax plan | Personal Finance | Finance

Millions of pensioners could see around £200 deducted from their monthly State Pension payments under new plans being considered by the Treasury.

Officials are drawing up proposals that would see income tax automatically taken from State Pension payments before they reach pensioners’ bank accounts, according to City AM.

The plans, which are reportedly being developed by the Treasury alongside the Department for Work and Pensions (DWP), would introduce a system similar to PAYE, where tax is deducted before money is paid.

It comes as the State Pension is expected to rise above the income tax Personal Allowance as a result of the triple lock, meaning more pensioners could become liable for tax.

Among the options being considered is a default 20% basic-rate tax deduction from State Pension payments, with any overpayments or underpayments reconciled at the end of the tax year alongside any other income.

For someone receiving the full new State Pension, a 20% deduction would amount to around £200 being withheld from a month’s payment, although the final amount of tax owed would depend on an individual’s total taxable income and could later be adjusted.

The reported plans appear to contrast with previous assurances given by Chancellor Rachel Reeves.

Speaking to consumer champion Martin Lewis on ITV last November, Ms Reeves said pensioners whose only income was the State Pension would not be forced to submit tax returns.

She said: “So if you just have a State Pension, you don’t have any other pension, we are not going to make you fill in a tax return… I make that commitment for this Parliament.”

When asked whether those pensioners would still have to pay the tax, she replied: “In this Parliament, they won’t have to pay the tax.”

According to City AM, ministers are now exploring ways of collecting tax directly from State Pension payments rather than requiring pensioners to settle bills separately.

The Government is also understood to be considering outsourcing the operation of the system to a private sector contractor if the policy goes ahead.

A Treasury spokesman declined to comment on the reported proposals, while the Department for Work and Pensions also declined to comment. No final decision has been made on whether the system will be introduced.