People deriving income solely from state pension won’t be taxed – under a major rule change from the Labour Party government. But the change from Labour – which comes due to fiscal drag – has created warnings of a two-tier system.

A two-tier system has been mooted for retirees solely on new state pension and those on private schemes. The new state pension is poised to rise to £241.30 a week next April, putting the annual income for someone receiving the standard payment at £12,547 – just below the personal tax allowance of £12,570 a year.

The freezing of tax thresholds means that if the state pension rises by just 2.5%, from April 2027 it will fall above the threshold and someone receiving it will face paying tax on £292 of their payments – a bill of £58.

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But Labour has vowed to “ease the administrative burden for pensioners whose sole income is the basic or new state pension.”

It said they would not have to “pay small amounts of tax via simple assessment from 2027-28 if the new or basic state pension exceeds the personal allowance from that point”.

But Chancellor Rachel Reeves said that the government would not be “going after tiny amounts of money”.

She was asked if they would have to pay the tax and replied: “In this parliament, they won’t have to pay the tax.”

Steve Webb, a former pensions minister and now a partner at the consultancy LCP, said the idea of not levying income tax on one set of retirees “raises several questions of fairness”.

“The government has a clear presentation problem when the new state pension goes above the tax threshold in 2027,” the former Liberal Democrats Pensions Minister said.

“But millions of pensioners already get state pensions above the tax threshold and nothing has so far been done for them. So there is a real risk that pensioners on the new system will be more favourably treated.”

He said: “This penalises those who have saved, even modest amounts. 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 national insurance contributions which seems unfair.”

Webb said: “It will be incredibly difficult for the Treasury to come up with something that is workable and fair.”