With the Budget just days away, millions of state pensioners still do not know how the promised tax exemption on their pension payments will work, and neither Prime Minister Andy Burnham nor Chancellor John Healey has provided further details.
Exemption announced but not explained
The key issue centres on the tax exemption announced for state pensioners. First unveiled by predecessor Rachel Reeves, the promise was that state pensioners with no other income would be exempted from paying income tax on their DWP state pension benefits payments, even if the triple lock pushed their total income from the state pension above the £12,570 threshold.
Rather than raising the £12,570 threshold for everyone, including working people, which has been held in place since 2021, Reeves' plan was to freeze the threshold for even longer for workers and announce a special exemption for state pensioners instead.
Unanswered questions on other income
When the triple lock raises the full new state pension to over £13,000 next April, state pensioners will not lose any of their payments to tax, unless they have any other income. The caveat was announced in November 2025 when the policy was first revealed, but nobody in government has been able to expand upon it in the eleven months since.
The Express has been seeking answers all year. The Treasury told the publication that the tax exemption would not apply to any increments, such as Additional Pension payments. Older state pensioners through now-defunct schemes such as the AP can already receive more than new state pensioners and are already paying tax on their income.
What counts as increments remains unclear, including whether Pension Credit or the Warm Home Discount might be considered incremental pension top-ups. Finance experts at Hargreaves Lansdown pointed out that state pensioners can earn up to £18,570 a year through the Personal Savings Allowance and the Starting Rate for Savings, but it is not known whether those savings will be counted as any other income.
Lack of detail criticised
The Government has had almost a year to roll out further details on how the exemption will work, and has declined to provide any other than the AP payments information. With less than six months before the rule comes into place, pensioners remain uncertain about what they will pay tax on, despite backlash from campaigns such as WASPI, which has demanded compensation for a lack of notice about state pension age rises for women.
The Treasury only says: “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.”
