State pension payments increase each April
Chancellor Rachel Reeves speaking to the Treasury Committee(Image: UK Parliament)
Chancellor Rachel Reeves has provided an update regarding a significant tax change impacting state pensioners. Her remarks follow news that more pensioners will move into paying tax from this April when the triple lock comes into effect.
The Labour Government outlined in the Autumn Budget 2025 that it would introduce changes ensuring those whose sole income is the basic or new state pension without any increments “do not have to pay small amounts of tax” through simple assessment from the 2027/2028 tax year.
This new policy was needed because from April 2027, the full new state pension will consume the entire £12,570 annual personal allowance, meaning pensioners on this income alone will start paying income tax. State pension payments will increase by 4.8 per cent from April 2026, raising the full new amount to £241.30 weekly, or £12,547.60 annually, just over £20 short of exhausting the entire personal allowance.
The triple lock policy ensures the state pension rises by at least 2.5 per cent, so the full new rate will certainly exceed the threshold into attracting an income tax bill from April 2027 as things stand. The triple lock ensures payments increase in line with whichever is highest of the 2.5 per cent minimum, the rise in average earnings or inflation.
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HMRC officials told MPs in January 2026 that legislation would be required to implement this new tax exemption policy for state pensioners, potentially appearing in the finance bill in Autumn 2026. Chancellor Rachel Reeves has been questioned by the Treasury Committee regarding the progress on bringing in this new policy.
More details to come
She told the MPs: “From the beginning of April, the new state pension is going to go up by £575 a year, and over the course of this Parliament, it is forecast that the new state pension will be £2,000 a year higher by the end of the forecast, because of this Government’s commitment to the triple lock.
“The previous Government froze the income tax thresholds. It is in those years-for those freezes-that the new state pension will come into income tax if nothing is done, but I have committed to do something.
“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.”
Following this response, committee chair Meg Hillier highlighted a specific scenario where a state pensioner might become liable for tax. She said: “But if you earned bank interest above the £5,000 threshold, or you had a small dividend, you would be subject to income tax.”
Tax-free allowances
This relates to the starter rate for savings, which allows you to earn up to £5,000 annually in interest from your savings tax-free. This decreases by £1 for every £1 earned above the £12,570 yearly threshold, meaning the starter rate disappears once your income hits £17,570.
Beyond this allowance, basic rate taxpayers can earn up to £1,000 in interest without paying tax. This falls to £500 for higher rate taxpayers, whilst those on the additional rate receive no allowance.
Ms Reeves responded: “It is already the case that most pensioners with any form of private income are taxed. We want, of course, to make that as simple as possible but, over the course of this Parliament – when we are in office – we will not be taxing people whose only income is from the new state pension.”