Around 140,000 pensioners will soon face tax demands for the first time since they retired through the ‘simple assessment’ process.

They will get tax demands in the next six weeks because their pensions have risen above the £12,570 income tax threshold. 

Despite that, their earnings could still be below the industry standard minimum retirement income acceptable figure of £14,400 for a single person - and yet they will still be asked for tax payments on last year’s income, warned former Pensions Minister Sir Steve Webb.

Sir Steve, partner at pension consultants LCP, said: “It is rarely good news to receive a letter from HMRC and in this case 140,000 pensioners will be getting a tax demand in the next few weeks for the first time since they retired.  

“The size of the bill will often be relatively small at first, but this could grow year-on-year if the current policy of freezing tax thresholds continues.   

“The recipients of these letters are not well off and some will have a living standard below the pensions industry’s assessment of the ‘minimum’ income needed for a basic quality of life.” 

He warned of the risk that scammers will catch on to the fact that these letters are being sent out and come up with fake letters trying to con pensioners.  

Sir Steve said: “The new Government needs to take an urgent look at whether taxing so many people on such modest levels of income in retirement is really the right way to proceed”.

Where HMRC already holds all the information on someone’s taxable income from wages, state pensions or private pensions, and collects that tax through the PAYE system, it can work out their tax liability without them needing to a full self-assessment tax return, he explained.

Where insufficient tax has been collected – for example, from pensioners who only receive a state pension – HMRC then writes at the end of the tax year with a tax demand, in this case for 2023/24.

With tax thresholds having been frozen again for 2023/24 while state pensions rose by more than 10% in April 2023, many pensioners have now been dragged into the tax net, some for the first time.

HMRC said in a statement: “Over the next six weeks, we’re writing to around 560,000 customers who have taxable income but who are not in self assessment, or for whom we can’t automatically deduct the tax owed via a PAYE tax code. The letter will include a detailed calculation of any tax due for income they received between April 2023 and April 2024.

“They’ll need to pay what they owe using simple assessment. For some, including around 140,000 pensioners who will receive a letter, this will be the first time they’ve received a simple assessment.”