Martin Lewis has issued an important tax update for older people ahead of the State Pension uprating next April. The consumer champion explained how a new Pension Tax Allowance will protect people on lower incomes from paying income tax when the full New State Pension rises above the standard £12,570 Personal Allowance.
Speaking during a Budget Special of The Martin Lewis Money Show Live on ITV on Thursday night, Martin outlined who will qualify for the new tax protection, worth up to £94 a year, and reassured viewers that it will be applied automatically by HM Revenue and Customs (HMRC).
New allowance confirmed in Autumn Budget
The new measure was announced by Chancellor John Healey in Wednesday's Autumn Budget and will take effect from April 6, 2027, when the full New State Pension increases by 3.9 per cent under the Triple Lock.
Martin told viewers: "The tax per person allowance is £12,570. The current full New State Pension, there’s an old State Pension (Basic), you might not be on the full one (New) or it is just a tiny bit below that threshold, but that threshold is frozen, whereas the State Pension goes up with the Triple Lock, which means next April it’ll be going up 3.9 per cent, which puts it above the £12,570 personal allowance threshold."
He continued: "So if nothing happened, if you were just on the full New State Pension, you would have to be paying tax on the difference."
Who qualifies for the tax protection
The full New State Pension will rise to £13,036.40 in 2027/28, taking it £466.40 above the frozen Personal Allowance and creating a potential income tax liability of £93.28 for someone receiving no other income.
However, Martin confirmed that the new allowance will protect people whose total annual income is no more than £13,037, regardless of whether they receive the New or Basic State Pension. He told viewers: "As long as you’re of State Pension age, if you earn below that, you don’t pay any tax. And this extra Pension Tax Allowance is worth up to £94 a year."
The consumer champion also explained that people with slightly higher incomes may still qualify for a partial tax reduction. He said: "For each £3 you earn over £13,037, you lose £1 of the Pension Tax Allowance." Under the new rules, the tax reduction will gradually decrease for people with annual income between £13,037 and £13,319. Anyone with a total income of £13,319 or more will not qualify for the additional protection.
How the allowance applies
During the programme, a viewer called Mary asked how the new allowance would work for someone who starts the tax year below State Pension age but reaches retirement age and begins receiving their pension halfway through the year. Martin responded: "So it is very simple. If you hit State Pension age in the tax year, you get the pension tax allowance if you’re eligible for it. Best way I could phrase it, if you are of State Pension age on 5 April that year, then you get the Pension Tax Allowance." This means someone reaching State Pension age at any point during the 2027/28 tax year could qualify for the allowance, provided they meet the income conditions.
Martin also reassured viewers concerned about having to complete additional paperwork or contact HMRC to receive the tax reduction. He said: "Lots of people are worried about the self-assessment form. You don’t need to contact HMRC or make a claim. It will be applied automatically. So they know your details, it will be applied automatically. So don’t panic about getting into anything technical."
Official income thresholds for 2027/28
Official HM Treasury guidance confirmed the following income thresholds for the 2027/28 financial year:
- Below £12,570: No income tax is payable under the standard Personal Allowance
- £12,570 to £13,037: Full Pension Tax Allowance, worth up to £94
- £13,037 to £13,319: Partial Pension Tax Allowance, with the reduction gradually withdrawn
- £13,319 or more: No Pension Tax Allowance
Eligibility is based on total income, which can include State Pension payments, workplace or private pensions, earnings from employment, savings interest and rental income. The protection is not restricted to people receiving the full new State Pension and can also apply to those receiving the basic State Pension or who have deferred claiming their pension.
The Treasury confirmed that around 290,000 pensioners will avoid paying income tax in 2027/28 because of the new allowance, while approximately 500,000 people will benefit from a tax reduction. The allowance will remain in place for the 2027/28, 2028/29 and 2029/30 tax years, with its value uprated alongside the full New State Pension. Eligible pensioners in Scotland will also qualify for the protection, which will be calculated using the 20 per cent basic income tax rate rather than the Scottish starter rate of 19 per cent.
New State Pension payment rates from April 2027
The annual uprating of 3.9 per cent will see people receiving the full new State Pension get almost £490 more over the 2027/28 financial year.
Full New State Pension:
- Weekly: £250.70 (from £241.30)
- Four-weekly: £1,002.80 (from £965.20)
- Annual: £13,036 (from £12,547)
Full Basic State Pension:
- Weekly: £192.10 (from £184.90)
- Four-weekly: £768.40 (from £739.60)
- Annual: £9,989 (from £9,614)
The amount someone receives depends on their National Insurance contribution record, and not everyone qualifies for the full rate. Additional State Pension elements, including SERPS and State Second Pension, will increase by 3.5 per cent in line with September's Consumer Price Index (CPI) inflation rate rather than the Triple Lock.
