Chancellor Rachel Reeves has unveiled a significant new tax policy that will protect hundreds of thousands of state pensioners from an impending income tax bill, with savings set to exceed £190 annually for some.
How the Triple Lock Creates a Tax Threshold Problem
The policy addresses a growing issue caused by the interaction of the state pension's triple lock and the frozen income tax personal allowance. The full new state pension is currently £230.25 per week. Due to the triple lock, it is set to rise by 4.8 percent in April 2025, taking it to £241.30 weekly, or £12,547.60 a year.
This brings the pension perilously close to the current £12,570 personal allowance. With the Chancellor confirming the allowance will remain frozen beyond April 2028, and the triple lock guaranteeing annual increases of at least 2.5 percent, pensioners relying solely on the state pension were on course to be pushed into paying income tax from April 2027.
The Chancellor's Intervention: Shielding Pensioner Income
In a key intervention, Chancellor Rachel Reeves has now stated that individuals whose only income is the DWP state pension benefit will not pay income tax on their payments, even when the pension's value exceeds the personal allowance.
This creates a de facto tax shield for this group. The government's commitment to maintaining the triple lock allows for clear calculations of the minimum savings pensioners can expect.
Projected Tax Savings for Sole-Income Pensioners
Using the guaranteed minimum 2.5 percent annual rise under the triple lock, the projected savings are substantial:
- From April 2027: The full new state pension would rise to £247.35 per week (£12,862.20 annually). Under old rules, tax would be due on £292.20 of income. The new policy saves these pensioners £58.44 in tax for the year.
- From April 2028: With another 2.5% rise to £253.55 weekly (£13,184.60 annually), the tax exemption on £614.60 of income translates to a saving of £122.92.
- From April 2029: A further rise to £259.90 per week (£13,514.80 annually) means pensioners avoid tax on nearly £1,000 of their income. Specifically, they would be exempt from tax on £944.80, pocketing a significant annual saving of £188.96.
This policy represents a direct financial boost for a vulnerable group, ensuring that the real-terms increase provided by the triple lock is not eroded by an automatic rise in their tax liability.
