The Government is introducing a major change to how the state pension is taxed, but key questions remain about its implementation. HMRC has confirmed that new legislation will be brought before Parliament to enact the changes.
Growing Number of Claimants Affected
As state pension payments rise each April, more claimants are being pulled into income tax. The personal allowance remains frozen at £12,570 a year, meaning once income exceeds this threshold, tax at 20% is due. The current full new state pension pays £241.30 a week, or £12,547.60 a year—just below the threshold. However, due to the triple lock policy, those receiving only the full new state pension will cross the threshold from next April.
Triple Lock Policy
The triple lock ensures payments increase each April in line with the highest of average earnings, inflation, or 2.5%. To address the looming issue, the Government announced at the Autumn Budget 2025 that those receiving only the state pension without additional increments would not be liable for income tax.
New Laws and Concerns
Senior HMRC officials stated that legislation must pass through Parliament for the changes to take effect. Kate Smith, head of public affairs at Aegon UK, raised concerns about potential inequalities: around 4 million people receive the new state pension, and some have no other retirement income. However, due to auto-enrolment, many pensioners will have workplace pension savings, bringing them above the personal allowance. Smith warned it would be unfair if those who saved are treated differently from those who did not.
Possible Disparities
The policy could create a scenario where someone with only the full new state pension pays no tax, while someone with less state pension but additional income (e.g., a workplace pension) totalling the same amount would be liable. Smith suggested a remedy: a higher personal allowance for all pensioners. However, she noted this might be unfair to the working-age population, who would pay higher income tax and National Insurance, potentially creating intergenerational tensions.
Government Update
An HM Treasury spokesperson confirmed: "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." The department added that work continues behind the scenes on the new policy.
Your state pension entitlement is determined by National Insurance contributions; typically, 35 years of contributions are needed for the full new state pension. You can check your projected entitlement on the Government website.
