The full New State Pension will rise by 3.9 per cent to £250.70 per week from April 2027, lifting annual payments to £13,036.40 and pushing many pensioners above the standard Personal Allowance for income tax.
The Department for Work and Pensions (DWP) confirmed the increase, which also raises the full Basic State Pension to £192.10 per week, or £9,989.20 over a full year. The higher payments mean the full New State Pension will exceed the £12,570 Personal Allowance, the amount most people can earn before paying income tax.
New income tax rules for pensioners
The UK Government announced a new Pension Tax Allowance in the Autumn Budget on October 28, designed to protect pensioners on lower incomes from paying tax as a result of the annual State Pension increase. Under the new rules, pensioners whose total income is no more than the full annual New State Pension will not have to pay income tax.
For the 2027/28 financial year, the full allowance will apply to eligible pensioners with total income of £13,037 or less. Those with income above this amount may still qualify for some relief, which will gradually reduce as income increases. The allowance will be completely withdrawn once total income reaches £13,319.
How many pensioners will benefit
HMRC estimated that around 500,000 pensioners will benefit from the change, including approximately 290,000 who will no longer have to pay income tax. The measure is scheduled to apply for three tax years, from April 2027 until April 2030.
HMRC also confirmed that eligible pensioners will receive the new Pension Tax Allowance automatically using information already held about their income and State Pension age. People will not need to submit a separate application or contact HMRC to receive the tax reduction. The allowance will reduce any income tax owed, but it will not result in an additional payment to people who have no tax liability.
How State Pension income is taxed
The State Pension is classed as taxable income, although income tax is not deducted directly from payments made by the DWP. Whether someone needs to pay tax depends on their total taxable income during the financial year, including any workplace or private pensions, employment earnings and taxable savings income.
Most people can receive up to £12,570 annually before paying income tax. This threshold has been frozen and is due to remain unchanged until April 2031. People whose total taxable income exceeds their available allowances may have to pay tax on the amount above the threshold.
For people receiving workplace or private pensions, HMRC will usually adjust their tax code so any tax owed on their State Pension is collected through those payments. People who continue working beyond State Pension age may have tax collected through their wages instead. Most workplace and private pension income is taxable, although the amount someone pays depends on their total income and available tax allowances.
Guidance on GOV.UK advises that Income Tax may be payable if someone's total annual income exceeds their Personal Allowance, and a free online tool is available to check whether tax may be due on pension income.
