New Prime Minister Andy Burnham and his new Chancellor John Healey have both committed to keeping former Chancellor Rachel Reeves' tax exemption for state pensioners in place in the upcoming Budget. First announced last November, the exemption means that state pensioners with 'no other income' besides the DWP state pension payments will not be made to pay tax on their income, even if (and when) the triple lock's annual boosts take state pension payments above the frozen £12,570 tax threshold.
Exception for Older Pensioners
But there is already one confirmed exemption to the exemption, as it were, which relates to now-defunct 'second state pension' schemes only available to older state pensioners (those who claimed their state pension before April 2016), and Mr Burnham will oversee those older state pensioners being taxed without being given any let-off under the new rules.
Despite the change in rules coming into place, the state pension has always been taxable and older state pensioners who participated in now-defunct additional pension (AP) schemes are in many cases already paying tax on their pension income today.
Details of the Additional State Pension
Those older, basic state pensioners with additional pension payments from the DWP will not be allowed to get an exemption on their tax bills, HM Treasury previously confirmed to the Express, even if they have no other non-DWP income, like private pensions, property income or work salary.
The additional state pension is an extra amount of money you could get on top of your basic state pension if you’re a man born before April 6, 1951 or a woman born before April 6, 1953 unless you were ‘contracted out’ by your employer.
There is no fixed amount for additional state pension, as it is made up of three schemes: State Second Pension, which ran from 2002 to 2016, State Earnings Related Pension Scheme (SERPS) from 1978 to 2002 and state pension top up, which ran from October 2015 to April 2017, although there is a maximum.
From April 6, 2026, AP payments increased to a maximum of £230.54 per week, up from £222.10, which is paid on top of the £184.90 basic state pension.
Chancellor's Previous Comments
In November, Ms Reeves told Parliament: “People only in receipt of the basic or new state pension do not have to pay small amounts of tax through simple assessment from April 2027.”
The next day, the Chancellor appeared on the Martin Lewis Money Show Live on ITV1 where she confirmed that this was not merely an announcement that state pensioners would not need to fill out an assessment form, but that they would be entirely exempt from paying tax at all, if they had no other income besides the DWP state pension, either basic or new.
Martin asked Ms Reeves: “But people will have to pay the tax, they just won’t have to do a return or will they not have to pay the tax?” Ms Reeves replied: “In this Parliament they won’t have to pay the tax. Further on, I’m not able to make any commitments on that. We are looking at a simple workaround at the moment.”
However, HM Treasury has confirmed that for older basic state pensioners, this exemption will only apply to those who don’t have any ‘increments’, such as the additional pension schemes and this has been confirmed again since new Prime Minister Andy Burnham took office.
An HM Treasury spokesperson said: “Anyone 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. 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 the highest Personal Allowance in the G7.”
