Chancellor John Healey is expected to confirm a 3.9% state pension increase to £13,036 a year in the Autumn Budget, alongside plans to raise the personal allowance for low-income pensioners to prevent them from paying tax.
The Budget will be laid out in the House of Commons on Wednesday, October 28, with Mr Healey delivering his first Autumn Budget. The announcement comes as Britain finds itself in a “tough” financial position, with borrowing costs at multi-decade highs, public-sector spending at historic levels, and tax revenues at record highs.
Higher energy prices linked to the US-Iran war have also eroded the fiscal headroom available at the spring forecast, estimated at around £20 billion - potentially reducing it to as little as £10 billion.
State pension rise and tax threshold
With the personal allowance frozen at £12,570 until April 2031, the state pension is on track to exceed the tax-free threshold next April. The anticipated 3.9% triple lock increase would take the full new state pension to approximately £13,036 a year - some £466 above the allowance. That could leave somebody receiving the full amount facing an income tax bill of around £93 a year, despite having no other income.
According to The Times, Mr Healey is expected to confirm next April's 3.9% state pension increase to £13,036, based on the earnings element of the triple lock. To prevent the full new state pension from pushing some people over the tax threshold, he is reportedly planning to raise the personal allowance for pensioners on low incomes to £13,036 as well. The policy is anticipated to assist approximately one million pensioners and cost roughly £200m annually by 2030.
New tax rules for pensioners
A minister pledged in September that the government will reveal new tax rules for pensioners at the upcoming Budget. The latest figures suggest the state pension will rise to around £13,036 for people claiming the full new state pension next year - which would take it above the income tax threshold for the first time. The personal tax allowance has been frozen at £12,570 since 2021.
The government has so far said that pensioners who are wholly dependent on their state pension, with no private pension, will not have to pay tax if their income breaches the threshold. But details of how the policy will work remain unclear. In a statement, pensions minister Torsten Bell said the detail would be outlined in the Budget.
