Concerns have been raised over 'unfair' new tax rules on the state pension, which could result in claimants being treated differently. HMRC has confirmed that new legislation will be introduced to enact these changes, but the details remain unclear.
Key Changes to State Pension Taxation
As state pension payments increase each April, more claimants are being pushed into paying income tax. The personal allowance remains frozen at £12,570 per year, meaning any income above this threshold is taxed at 20 percent. The current full new state pension pays £241.30 per week, or £12,547.60 annually, which is just below the threshold. However, due to the triple lock pledge, those on the full new state pension will exceed the personal allowance from next April.
The triple lock ensures payments rise each April in line with the highest of three measures: average earnings growth, inflation, or 2.5 percent. In response, the government announced at the Autumn Budget 2025 that it would make changes so that those solely reliant on the state pension without additional increments would not pay income tax.
Potential Inequality Issues
Kate Smith, head of public affairs at Aegon UK, highlighted a potential inequality: some people may pay tax while others with similar incomes do not. Around 4 million people receive the new state pension, and many have workplace pension savings due to auto-enrolment, pushing their total income above the personal allowance. Smith noted, 'It would be unfair if those who have saved are treated differently to those who haven't saved in a pension.'
For example, someone with only the full new state pension might pay no tax, while another person with a lower state pension but additional workplace pension income, totaling the same amount, could face a tax bill.
Proposed Solutions
Smith suggested that a higher personal allowance for all pensioners could be fairer, but this might create intergenerational tensions, as working-age people would effectively pay higher income tax and National Insurance contributions.
An HM Treasury spokesperson stated, '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.' They added that work on the new policy is ongoing.
