The government has confirmed the exact State Pension increase for April 2027 and detailed how a new Pensioner Tax Allowance (PTA) will work from the same date. The changes were announced in the Budget this week by Chancellor John Healey.
The full new State Pension will rise to £250.70 a week, or £13,036.40 a year, from April 6, 2027. This is up from £241.30 a week and £12,547.60 a year in April 2026. The Basic State Pension will increase to £192.10 a week, or £9,989.20 a year, up from £184.90 a week and £9,614.80 a year.
Why the Pensioner Tax Allowance is being introduced
From next year, the full new State Pension will exceed the personal tax allowance of £12,570 for the first time. The personal allowance is currently frozen at that level and is set to remain there until 2030 under the government's current plans.
The government had previously pledged that no pensioner whose sole income was the State Pension would have to pay income tax on it. Treasury documentation explains: "From 2027-28, the full new state pension will rise above the personal allowance. For some pensioners, this would mean receiving a letter and having to pay a relatively small amount of tax to HMRC for the first time. The government recognises that the administrative burden involved could be disproportionate to the amount of income tax due."
How the Pensioner Tax Allowance works
From April 2027, if a pensioner's total income is no more than the full annual value of the new State Pension - £13,037 - they will receive the full PTA and will not be brought into paying tax. This applies regardless of where the income comes from, including the State Pension, a private pension, earnings from work, self-employment income, savings, property or dividend income, or a combination.
For tax years 2028-29 and 2029-30, the value of the PTA will be uprated in line with the full annual value of the new State Pension, so the threshold continues to align with the new State Pension during this Parliament.
What happens if your income is above the allowance
The allowance will have a taper so that those just above the threshold may still benefit. The government explains: "If your total income is slightly higher than the full annual value of the new State Pension, you may still receive an income tax reduction and pay less income tax than you otherwise would."
"The value of your Pension Tax Allowance will gradually reduce as your income increases until it is fully withdrawn. For every £3 of income above the full level of the new State Pension, your Pension Tax Allowance will reduce by £1." The taper applies for people whose income is between £13,037 and £13,319. If total income is more than £13,319, the pensioner will not benefit from the PTA.
Pensioners do not need to contact HMRC or make a claim for the PTA. HMRC will use information it holds on state pension age and income to apply the allowance automatically when calculating income tax. According to the government, around 290,000 pensioners will not pay any income tax in 2027-28 thanks to the PTA, while around 500,000 people in total will benefit from a tax reduction. By the end of this Parliament, around 1 million pensioners will benefit.
