Payment rates for the state pension increase each April
New tax rules soon to take effect for the state pension could cause “unfairness” between how different claimants are treated. Other changes to the qualifying rules for the DWP benefit are already underway.
As the triple lock mechanism increases the state pension each year, the full new state pension is almost at the point where it will trigger an income tax bill. State pension amounts increase every April according to whichever is greatest: 2.5 per cent, average earnings growth or inflation. The full new state pension presently delivers £241.30 weekly, or around £12,550 annually, nearly using up the whole £12,570 personal allowance. This is the most you can earn each tax year without paying income tax.
Following the triple lock uprating from next April, recipients of the full new state pension will certainly exceed this threshold and face income tax on their payments, as things stand.
New tax policy
However, Labour announced in the Autumn Budget 2025 that it would introduce measures to ensure those whose sole income is the state pension without extra amounts would be spared the levy. HMRC officials also previously said that legislation would need to go before Parliament to implement the change.
Nevertheless, the specifics of the new policy remain undefined, including precisely who will qualify for the exemption. Hannah Martin, pensions specialist and founder of Rich Retiree, warned that the new measures could create situations where two people with the same income pay different amounts of tax.
‘Unfairness’ between claimants
She warned: “It could indeed lead to unfairness between different groups. It’s estimated that, of the 13.2 million people currently receiving a state pension, fewer than one million will be covered by the policy.
‘”As an example, someone who only receives a basic state pension and tops it up through work or other means won’t benefit, even if they ultimately earn the same amount as someone claiming the full state pension.”
She spoke about how the Government could try to avoid this issue – and why this may not be simple to do. Ms Martin said: “One alternative solution could be to increase the tax allowance for pensioners so that anyone wholly dependent on the new state pension would be under the tax threshold.
“However, this would be an expensive revenue loss for the Government.” Another option could be put on the table.
‘Writing off’ tax bills
The expert said: “Or they could simplify the plan and just write off small tax bills to a defined sum for all pensioners – whether the income came from the state pension or not.”
With the tax rules for state pensioners set to become more complicated, Ms Martin was asked what steps people should take to ensure they are paying the right amount. She said to make sure you are “fully aware” of your financial position.
‘You must declare it’
The expert said: “This includes all income, including state pension, private pensions, savings and investments, property income, and part time work. It’s important to remember that the state pension is taxable and is paid to you gross, so you must declare it as income.
“Income that is not subject to tax includes ISAs, your annual personal savings allowance and annual dividend allowance and any income earned under the Rent a Room Allowance.”
Another significant change to be aware of is the rise in state pension age, which is taking effect now. The qualifying age is gradually increasing from 66 to 67, with this change being implemented in stages between April 2026 and April 2028.
Help is available with your state pension
For those already claiming the state pension who have queries regarding their claim, the Pension Service is available to offer help. You can reach them by phone on 0800 731 0469, Monday to Friday, between 8am and 6pm.
If you haven’t yet started claiming your state pension, you can check how much you’re set to receive and when you’ll be eligible online. This can be done using the state pension forecast tool on the Government website.
