Chancellor John Healey has confirmed a new tax rule for the State Pension, set to take effect from April 2027, as part of his first Autumn Budget delivered today (October 28). The measure is designed to prevent pensioners whose incomes only just exceed the Personal Allowance from being brought into tax because of State Pension uprating.
Mr Healey called the fiscal plans 'a Budget for the working people of Britain', focusing on 'fiscal discipline, immediate action for today and relief for the future'. He had limited scope for major giveaways due to the stretched state of public finances, worsened by international market turmoil caused by the Iran war.
Pension Tax Allowance from April 2027
The government will introduce the Pension Tax Allowance from April 2027, which will 'reduce the disproportionate administrative burden of paying small amounts of tax for those whose incomes only just exceed the Personal Allowance.' This means that, throughout the duration of this Parliament, pensioners with incomes at or under the value of the full new State Pension will not be brought into paying tax because of State Pension uprating.
The State Pension and other benefits including Universal Credit and PIP are uprated annually in April. The triple lock determines the State Pension's value, while inflation usually drives benefit increases. Based on known figures, pensioners are on course for a 3.9 per cent State Pension boost, while most DWP benefits are expected to increase in line with inflation at 3.5 per cent.
Impact on Pensioners
A 3.9 per cent increase to the State Pension would see it exceed the income tax personal allowance of £12,570 for the first time, rising to just over £30,000 for someone on a full new State Pension.
Mr Healey said: “For pensioners, I am delivering the new pension tax allowance – so that pensioners with income up to the value of the full new state pension will not pay income tax in this Parliament.
“For ex-mineworkers, I’m guaranteeing that every penny of the pension fund surplus now goes to miners. I know the job’s not finished and I will go on to ensure the full transfer of the guarantor’s fund.
“For carers, I am getting rid of the cliff edge on earnings, so that people don’t lose their entire carers allowance when they earn a penny over the threshold. And for 2.3 million of our lowest paid workers, I am increasing both the national minimum wage and the national living wage by 3.9%.”
