Pensions Minister Torsten Bell has confirmed that legislation will be introduced to ensure people whose only income is the State Pension do not have to pay small amounts of income tax from 2027-28. The announcement came during a Parliamentary debate on June 15 on a petition calling for a higher Personal Allowance for pensioners, which has attracted nearly 120,000 signatures.
Background on the Issue
MPs raised concerns that the State Pension is moving closer to the income tax threshold as annual increases under the Triple Lock continue while the Personal Allowance remains frozen at £12,570 until April 2031. The full rate of the New State Pension is worth £12,547.60 a year in 2026-27, just below the current Personal Allowance of £12,570.
Responding to these concerns, Mr Bell said Chancellor Rachel Reeves had already committed to easing the administrative burden on pensioners. He told MPs: "The Chancellor has also promised that we will ease the administrative burden for pensioners so that they do not have to pay small amounts of tax via simple assessment from 2027-28."
Details of the Change
Mr Bell confirmed the changes will be included in a future Finance Bill. The move means people whose only income is the State Pension should not have to deal with small tax demands as pension payments continue to rise. However, the UK Government stressed the change does not amount to a wider exemption from income tax for pensioners. People who receive additional income from workplace pensions, private pensions, employment, rental income or savings may still have to pay tax depending on their circumstances.
Rejection of Separate Allowance
Mr Bell rejected calls to create a separate tax allowance for pensioners, saying such a move would come at a significant cost to the public finances. He also confirmed the UK Government will continue with the Personal Allowance freeze introduced by the previous government. The UK Government said its priority remains maintaining the Triple Lock, which guarantees the State Pension rises each year by the highest of inflation, average earnings growth or 2.5 per cent.
Guidance on State Pension and Tax
Guidance on GOV.UK states: "You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates. Your total income could include: the State Pension you get - Basic or New State Pension; Additional State Pension; a private pension (workplace or personal) - you can take some of this tax-free; earnings from employment or self-employment; any taxable benefits you get; any other income, such as money from investments, property or savings."
Pensioners can check if they need to pay tax on their pension using an online tool at GOV.UK, which requires information on State Pension, private pension income, and other taxable income for the current tax year.
