Key changes to the state pension are coming in (Image: Getty)
A major tax change is coming in soon, affecting state pensioners. The major policy shift will change the amount of tax that some pensioners pay.
Labour announced in the Autumn Budget 2025 that it would change the tax allowance rules so that those on the state pension alone without increments will not have to pay income tax. This policy was set out as the full new state pension is set to cross the personal allowance threshold from next April, moving those on the state pension alone into paying income tax.
You can currently earn £12,570 a year without paying income tax in line with the personal allowance. But the full new state pension now pays £241.30 a week, or £12,547.60 a year.
The triple lock policy means state pension payments rise each April following whichever is highest of three measures: the rise in average earnings, inflation or 2.5 per cent. So the full new state pension will definitely cross the line and attract a tax bill after the April 2027 increase.
‘Edging closer’ to paying tax
But the Government has yet to set out all the details about how the new tax exemption will work. Kate Smith, head of public affairs at investment platform Aegon UK, said of the change: “State pensioners receive either the new or old basic state pension. At £12,547 a year, the new state pension is edging closer to the standard annual personal allowance of £12,570, which is frozen until April 5, 2031.
“The Government has committed that no one receiving only the new or old state pension, without increments, will have to pay income tax during this Parliament.” Ms Smith shared her thoughts on what the new tax policy will likely involve.
She said: “We still have no details on how this will work in practice, but we expect there be a new allowance for pensioners identified by HM Revenue and Customs as receiving only the state pension and having no other pension income. This will need to be updated annually to ensure it keeps pace with triple lock increases to the state pension.”
Senior HMRC officials said previously that legislation would need to be brought in to enact this, and that this may come in the autumn finance bill. The Treasury was recently asked for an update on the looming policy change.
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.”
The department also said that work is underway on this policy and that it will announce more details about this in due course. Chancellor Rachel Reeves was previously asked for an update on the policy change in March.
She told the Treasury Committee: “We are working on how that will work at the moment, but we have been clear that, if your only income is from the new state pension, you will not be subject to income tax during the course of this Parliament. We will set out details later this year on how that will happen.”
Other state pension changes
Another key change to the state pension is that the age when you can claim the DWP benefit is moving upwards. The access age is going up in stages from 66 to 67, between April 2026 and April 2028.
Laws are also in place for this to increase again from 67 to 68, between 2044 and 2046. To see how much state pension you are on track to get, you can use the state pension forecast tool on the Government website.
A person typically needs 35 years of National Insurance contributions to get the full new state pension. If you have gaps in your record, you may have the option to voluntarily pay to fill them in. However, you can only do this up to six tax years ago.