Prime Minister Andy Burnham has confirmed that state pensioners will receive a boosted tax-free Personal Allowance, effectively rising to £12,861 from April 2027 for those with a full National Insurance record and no other income.
Commitment to Reeves' Pledge and Triple Lock
One week into office, Burnham has promised to honour Rachel Reeves' pledge that state pensioners relying solely on the state pension will not pay income tax. He also committed to Labour's manifesto pledge to maintain the triple lock on pensions.
The combination of these policies means the tax-free Personal Allowance effectively increases to £12,861 for new state pensioners from April 2027, and potentially higher. Burnham confirmed he would not scrap the triple lock, despite pressure from the Office for Budget Responsibility and the Tony Blair Institute.
HM Treasury Confirmation
On Thursday, HM Treasury confirmed that state pensioners will not pay income tax on their state pension payments if they have no other income. This policy was initially announced by Rachel Reeves on the Martin Lewis Money Show, where she clarified that pensioners with no other income would pay no tax at all.
New Prime Minister Burnham and Chancellor John Healey have reaffirmed this commitment.
Background to the Change
From April 2027, the triple lock increase would push new state pension payments above the frozen £12,570 threshold, potentially triggering tax for the first time. However, the exemption ensures those with no other income are not taxed. For example, a 20% taxpayer with a pension of £12,861 would have faced a £58.20 bill without the exemption.
Older pensioners receiving incremental payments like SERPs are not exempt and may already pay tax. Raising the Personal Allowance instead would also help workers, according to Tom Selby, director of public policy at AJ Bell.
Expert and Official Comments
Tom Selby said: “Increasing the personal allowance would help everyone by handing taxpayers across the spectrum the same tax saving. But for the lowest earners, the financial boost will be larger as a proportion of their total income, meaning it would make a big financial difference to those with the least financial strength.” He cautioned that the triple lock has “serious” long-term fiscal implications.
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.”
