The qualifying rules for the state pension are currently changing
A major tax reform is set to be implemented shortly, impacting state pensioners. The key policy change will change the tax burden for certain pensioners.
Labour announced in the Autumn Budget 2025 that it would change the tax allowance rules so that those receiving only the state pension without additional increments would be exempt from income tax. This measure was introduced as the full new state pension is projected to exceed the personal allowance threshold from next April, pushing those on the state pension alone into the income tax bracket. Currently, you can earn £12,570 annually without paying income tax under the personal allowance. However, the full new state pension now provides £241.30 weekly, equivalent to £12,547.60 per year.
The triple lock mechanism ensures state pension payments increase each April according to whichever is greatest of three factors: average earnings growth, inflation or 2.5 per cent. Consequently, the full new state pension will inevitably surpass the threshold and incur a tax liability following the April 2027 uplift.
‘Edging closer’ to paying tax
However, the Government is yet to outline all the details regarding how the new tax exemption will function. Kate Smith, head of public affairs at investment platform Aegon UK, commented on 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 implementing 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 to 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 progress of implementing the new tax policy. 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 significant change to the state pension is that the age at which you can claim the DWP benefit is rising. The eligibility age is increasing in stages from 66 to 67, between April 2026 and April 2028.
Legislation is also in place for a further rise from 67 to 68, between 2044 and 2046. To check how much state pension you are on course to receive, you can use the state pension forecast tool on the Government website.
To qualify for the full new state pension, you generally need 35 years’ worth of National Insurance contributions. Should there be any gaps in your record, you may be able to make voluntary payments to plug them.
Bear in mind, however, that this is only possible for up to six tax years in the past.
