Andy Burnham has confirmed that state pensioners would be £537 better off after a state pension rule change from HMRC and the Labour Party government, if he becomes Prime Minister. The Centre for Policy Studies (CPS) analysed Chancellor Rachel Reeves’ decision to shield state pensioners from paying tax on Department for Work and Pensions (DWP) payments.
Triple Lock and tax exemption details
Ms Reeves confirmed before Christmas that state pensioners would not have to pay ‘small amounts of tax via simple assessment’. The Triple Lock means state pension payments increase in line with inflation, earnings or 2.5%. Under this metric, which Mr Burnham has committed to, a pensioner could expect to be at least £306 better off in real terms in 2030-31 than in 2025-26.
If state pensioners relying solely on the state pension are then exempt from paying income tax even once the payment crosses the personal allowance threshold, they could be £537 better off, the CPS says.
Reeves’ interview comments
Speaking in an interview with Martin Lewis, Reeves said: “If you just have a state pension, we are not going to make you fill in a tax return of any type.” Pressed on whether these pensioners would need to pay tax at all, she added: “In this Parliament, they won’t have to pay the tax. We’re looking at a simple workaround at the moment.”
Criticism from former pensions minister
However, LCP partner Steve Webb, the former Liberal Democrats and Conservative Party pensions minister, suggested that the plan to exempt some state pensioners from income tax risks being "unfair and unworkable". He highlighted that millions of pensioners already receive state pensions above the tax threshold, and that nothing has so far been done for them, creating a "real risk" that pensioners on the new system will be more favourably treated.
"The new scheme also risks penalising people with small private pensions who will not be protected compared with those who have no private pension who will be protected," he continued. "And the new rules will mean that a pensioner just above the tax threshold will pay no tax whilst an employee on exactly the same income will pay both tax and NICs, which seems unfair," he added.
