Treasury confirms commitment to state pension tax exemption

The Treasury has said it remains committed to a policy that would prevent pensioners whose only income is the state pension from paying income tax, as upcoming changes threaten to push the full new state pension above the tax-free allowance threshold.

In a statement, an HM Treasury spokesperson said: "Pensioners 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." The department confirmed that work on the policy is "underway" and that more details will be published in due course.

Why the policy is needed

The full new state pension is set to rise above the personal allowance threshold of £12,570 from next April, driven by the annual triple lock increase which raises the state pension by the highest of inflation, average earnings growth, or 2.5 per cent. The personal allowance is the amount a person can earn in a year before paying income tax.

Currently, the maximum weekly new state pension is £241.30, or around £12,550 per year, just below the threshold. The upcoming increase is expected to push it beyond that level, meaning pensioners relying solely on the state pension would otherwise become liable for income tax for the first time.

The Government announced at the 2025 Autumn Budget that it would introduce a new policy to address this, following a commitment made by former Chancellor Rachel Reeves that people whose only income is the state pension without extra amounts would not pay income tax.

The exact details of how the policy will work have not yet been made public, and HMRC officials said previously that fresh legislation would likely be needed to implement it.

Expert views on possible mechanisms

Kate Smith, head of pensions at pensions provider Aegon, said the most likely solution would involve changes to the tax system.

"If the Government presses ahead with plans to ensure those receiving only the new state pension don't pay income tax, the most likely solution is through changes to the tax system," she said. "Whether that's delivered through a new tax code, a higher allowance or another mechanism remains to be seen, but it would help prevent future triple lock increases dragging more pensioners into paying tax."

Ms Smith added that the policy could spark debate over fairness. "If changes come, there will inevitably be debate over whether it is fairer to increase the personal allowance for all taxpayers rather than create a special exemption that only benefits pensioners," she said.

She also noted that recent comments from the Prime Minister suggest growing concern about frozen tax thresholds more generally. Prime Minister Andy Burnham told The Times that during his campaign in Makerfield, people had often raised the issue of the personal allowance.

Context on the personal allowance freeze

The personal allowance has been frozen at £12,570 since 2021. Labour had previously said it would allow the allowance to un-freeze from April 2028, but former Chancellor Rachel Reeves said in her Autumn Statement 2025 that the freeze would be extended for a further three years, until April 2031.

The Treasury spokesperson highlighted the benefits of the triple lock, saying: "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 one of the most generous personal allowances in the G7."

Timeline and next steps

The policy is expected to be in force by next April, when the triple lock increase takes effect. Chancellor John Healey, who was recently appointed, is due to present the next fiscal statement on October 28, though the Treasury has not confirmed whether further details of the pension tax plan will be announced at that time.