New tax rules set to take effect for the state pension could create "unfairness" between different groups of claimants, according to a pensions expert. The changes come as the full new state pension approaches the threshold where it triggers an income tax bill, driven by the triple lock mechanism that increases payments each April.
Current State Pension and Tax Threshold
The full new state pension currently pays £241.30 per week, or approximately £12,550 annually. This nearly exhausts the £12,570 personal allowance—the maximum amount a person can earn each tax year without paying income tax. With the triple lock uprating scheduled for next April, recipients of the full new state pension will exceed this threshold and face income tax on their payments under current rules.
Government's Proposed Exemption
Labour announced in the Autumn Budget 2025 that it would introduce measures to ensure those whose sole income is the state pension, without additional amounts, would be spared the levy. HMRC officials have stated that legislation would need to go before Parliament to implement the change. However, the specifics of the new policy remain undefined, including precisely who will qualify for the exemption.
Expert Warns of Potential Unfairness
Hannah Martin, pensions specialist and founder of Rich Retiree, warned that the new measures could create situations where two people with the same income pay different amounts of tax. She said: "It could indeed lead to unfairness between different groups. It's estimated that, of the 13.2 million people currently receiving a state pension, fewer than one million will be covered by the policy."
Ms Martin gave an example: "Someone who only receives a basic state pension and tops it up through work or other means won't benefit, even if they ultimately earn the same amount as someone claiming the full state pension."
Alternative Solutions
Ms Martin discussed how the government could try to avoid this issue, noting that it may not be simple. She said: "One alternative solution could be to increase the tax allowance for pensioners so that anyone wholly dependent on the new state pension would be under the tax threshold. However, this would be an expensive revenue loss for the Government." Another option could be to "simplify the plan and just write off small tax bills to a defined sum for all pensioners—whether the income came from the state pension or not."
Advice for Pensioners
With the tax rules for state pensioners set to become more complicated, Ms Martin advised people to ensure they are "fully aware" of their financial position. She said: "This includes all income, including state pension, private pensions, savings and investments, property income, and part-time work. It's important to remember that the state pension is taxable and is paid to you gross, so you must declare it as income."
Income that is not subject to tax includes ISAs, the annual personal savings allowance, annual dividend allowance, and any income earned under the Rent a Room Allowance.
State Pension Age Increase
Another significant change is the rise in state pension age, which is being implemented in stages between April 2026 and April 2028, gradually increasing from 66 to 67.
Help and Resources
For those already claiming the state pension with queries, the Pension Service is available by phone on 0800 731 0469, Monday to Friday, 8am to 6pm. Those not yet claiming can check their projected entitlement and eligibility using the state pension forecast tool on the Government website.
