In a significant move for retirees across the country, Chancellor Rachel Reeves has confirmed that millions of state pensioners will be spared from paying income tax on their state pension for the remainder of this Parliament.
Tax Reprieve for Millions
The announcement, made during an interview with MoneySavingExpert founder Martin Lewis on ITV, directly addresses a looming financial concern for an estimated ten million pensioners. Without government intervention, these retirees would have faced an income tax bill due to a fiscal phenomenon known as fiscal drag.
When questioned by Lewis on whether pensioners would be liable for the tax, the Labour Chancellor stated unequivocally: "In this Parliament they won't have to pay the tax." She did, however, refrain from making commitments beyond the current parliamentary term, noting that her team was examining a "simple workaround."
The Underlying Financial Pressure
The core of the issue lies in the interaction between two key government policies. The triple lock mechanism, which guarantees the state pension increases every April by the highest of earnings growth, inflation, or 2.5%, is set to push the full new state pension above the personal tax allowance.
Meanwhile, income tax thresholds have been frozen since the 2022/2023 tax year. The personal allowance, the amount you can earn before paying tax, remains at £12,570.
Martin Lewis, the consumer champion, clarified the situation: "From 2027, the full new state pension will be higher than the tax-free allowance, so tax is due." He confirmed that the Chancellor's announcement means pensioners will not pay the tax at all during this Parliament.
Budget Confirmation and Future Outlook
The policy was formally detailed in the Chancellor's Budget. It was revealed that individuals whose sole income is the basic or new state pension will be exempt from paying small amounts of tax through the Simple Assessment process.
This decision provides immediate relief and financial certainty for a vast portion of the retired population. The government's commitment shields pensioners from the administrative and financial burden that would have arisen from the tax threshold freeze clashing with the state pension increase driven by the triple lock, which for April 2026 is based on a 4.8% wage growth figure.
