New Prime Minister Andy Burnham and Chancellor John Healey have confirmed two key state pension rules, originally introduced by former Chancellor Rachel Reeves, will continue. These include a tax exemption for pensioners with no other income and the maintenance of the triple lock, ensuring increased payments in 2027.
Key Policies Confirmed
In his first weeks in office, Burnham publicly committed to not scrapping the triple lock, which guarantees annual increases to state pension payments every April. This comes despite pressures from the Office for Budget Responsibility and the Tony Blair Institute to remove it. Additionally, HM Treasury has confirmed that state pensioners will not pay income tax on their state pension payments, provided they have no other income.
This tax exemption is a direct continuation of a policy announced by Reeves on the Martin Lewis Money Show Live on ITV1. Initially, she stated pensioners would not pay 'small amounts of tax via self-assessment', but later clarified that pensioners with no other income would pay no tax at all.
Impact of the Policies
The issue would have become problematic in April 2027, as the triple lock increase would push post-2016 state pension payments beyond the frozen £12,570 threshold, potentially dragging pensioners into paying tax for the first time. However, with the exemption, those with no other income will be protected.
State pensioners have always been liable for tax, but those with no other income have never exceeded the threshold. This changes in April 2027, when even a minimum 2.5% increase would push payments to an estimated £12,861 for a full National Insurance record. Without the exemption, a 20% taxpayer could face a bill of £58.20, but the exemption prevents this.
Older Pensioners and SERPs
Some older pensioners already pay tax due to increments like the Second State Pension (SERPs). HM Treasury confirmed that these 'incremental payments' would not be exempted from tax. A 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."
