Worries have emerged regarding a significant change to taxation on the state pension. Ministers have confirmed the new policy will be coming in shortly. The new measure will involve changes to UK legislation before the new tax year commences in April 2027.
Chancellor Rachel Reeves revealed in the Autumn Budget 2025 that a new policy will be introduced to guarantee that those receiving only the state pension without additional increments will not be liable for income tax. The full new state pension is expected to exceed the personal allowance threshold from next April, meaning people who live solely on the state pension would face income tax on their payments, under existing rules.
In accordance with the personal allowance, you can presently earn £12,570 annually without paying income tax. However, the full new state pension now provides £241.30 per week, or £12,547.60 annually, leaving it barely £50 short of exhausting the entire allowance.
The triple lock mechanism, which Labour has pledged to maintain for the remainder of this Parliament, ensures state pension payments increase each April in line with whichever is greatest of three benchmarks. These are either inflation, the growth in average earnings or 2.5 per cent.
Key Questions Remain Unanswered
Hannah Martin, pensions expert and founder of Rich Retiree, highlighted several crucial questions that are yet to be addressed. She said: "This plan is intended to ease the administrative and financial burden on pensioners. However, the Government still hasn't announced details on how it will work. There are a number of elements that still need to be defined. For example, how will HMRC identify eligible people?"
She also pointed to further uncertainty surrounding how different groups would be treated. The expert posed some key questions: "How will they treat people who have small amounts of income, for example earning as little as £1 interest on tiny savings accounts? What about people receiving the old state pension with a basic plus additional state pension? As they are not 'solely dependent' on the old basic pension, will they be included?"
The full basic state pension currently pays £184.90 a week, or £9,614.80 a year. Nevertheless, a considerable number of those on the older scheme receive more than this figure, as additional amounts can be awarded depending on individual circumstances.
Treasury Statement
The Government was recently pressed for an update regarding the new policy. An HM Treasury spokesperson said: "Anyone whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that over this Parliament. By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7."
