The Government recently set out a new policy about tax on pensions. The full new state pension currently stands at £230.25 a week, or £11,973 annually
A tax expert has shed light on an impending tax change that will impact state pensioners. Chancellor Rachel Reeves recently confirmed that people who rely solely on the state pension will not be subject to income tax. The full new state pension currently stands at £230.25 a week, or £11,973 annually.
These payments are set to rise by 4.8 percent next April, pushing the full new state pension to £241.30 a week, or £12,547.60 a year. With the personal allowance allowing a person to earn up to £12,570 a year without incurring income tax, the full new state pension will be just over £20 shy of attracting a tax bill from next April.
Given that payments increase by at least 2.5 percent due to the triple lock policy, the full new state pension will certainly fall within the income tax bracket after April 2027. The triple lock pledge ensures that the state pension rises each April in line with either 2.5 percent, the increase in average earnings, or inflation, whichever is highest.
However, the Government has now assured that those living on the full new state pension will not be taxed, even once it surpasses the income tax threshold. While Chancellor Rachel Reeves has confirmed this policy, the Government has yet to detail how this will be implemented.
Lee Murphy, managing director of The Accountancy Partnership, has discussed potential ways this policy could be put into action. He explained: “Chasing tiny tax bills isn’t that efficient, so in practice this could mean not issuing tax returns or simple assessments where the state pension creeps above the frozen personal allowance by a small amount.
“The usual PAYE system and tax codes would still apply to pensioners with private or workplace pensions though, so the proposals are really about tidying up admin for a very specific group, hopefully without creating a completely separate tax regime for retirees.” Mr Murphy also warned about how complex the tax system can be to navigate, as there are various rates and types of tax depending on your individual circumstances.
He said: “The state pension is intended to provide a basic income in retirement and, for many pensioners who have limited ability to increase their earnings, it is a vital lifeline. The tax system must work for everyone, so although it will inevitably involve difficult choices, making changes which will help free up HMRC resources for other areas can be beneficial for everyone.”
Changes to the state pension
Currently, the state pension age stands at 66 for both men and women, but changes are on the horizon from next year. The qualifying age will rise in stages to 67 between April 2026 and April 2028.
The state pension age is also set to climb from 67 to 68 between 2044 and 2046, though there has been debate about accelerating this timeline. The Government confirmed in 2025 that another review of the state pension age would take place.
You can find out the amount of state pension you are set to receive by using the state pension forecast tool available on the Government website.