Officials have confirmed they are drawing up plans to avoid those on the new state pension only paying tax
Chancellor Rachel Reeves is set to come up with a plan over state pensions and tax (Image: Getty)
The Treasury has said that changes around the state pension and personal tax allowance £12,570 limit will be decided in 2026. The information came in a Treasury response to a huge petition calling for pensioners to be given a special tax code to stop them crossing the lowest income tax threshold.
The petition received an answer this week – soon after Chancellor Rachel Reeves froze the thresholds until 2031 – meaning people receiving the full new State Pension will pay tax from 2027, if the triple lock system, which increases payments by a minimum of 2.5 per cent a year, remains in place.
The petition, which can be viewed here has soared to 25,000 signatures – and now the Treasury has given an official response. The petition, initiated by Timothy Hugh Mason, states: “We want the government to introduce a new tax code for state pensioners, set at double the basic threshold. If this was implemented, pensioners would receive a higher tax-exempt limit, but wealthier pensioners would still pay tax.
“We think that people with small private or workplace pensions are currently being taxed unfairly.”
In her Budget last month Ms Reeves had pledged that people only receiving the full new state pension wouldn’t have to pay tax or fill in a tax return but didn’t explain how.
Now the Treasury has confirmed it will put a plan into action in 2026. In its response it said: “As announced at the Budget, the government will ease the administrative burden for pensioners whose sole income is the basic or new State Pension without any increments so that they do not have to pay small amounts of tax via Simple Assessment from 2027-28, if the new or basic State Pension exceeds the Personal Allowance from that point. The government is exploring the best way to achieve this and will set out more detail next year.”
On the issue of doubling the lowest tax threshold for pensioners to £25,140, the Treasury said: “The State Pension is the foundation of support for pensioners. The Government is committed to a fair tax system but doubling the Personal Allowance for pensioners would be untargeted and costly.”
“The State Pension is the foundation of support available to pensioners. The government is committed to the Triple Lock – one of the most generous State Pension uprating mechanisms in the world – for the duration of this Parliament. This will increase the basic and new State Pension by 4.8% next April, boosting pensioner incomes by up to £575 a year and strengthening retirement security.
“The Personal Allowance is already the highest amongst G7 countries. Doubling this allowance for all pensioners would be costly and untargeted – disproportionately benefiting higher income pensioners.”
The triple lock will boost the full new State Pension from £230.25 to £241.30 per week (£12,548 per year) next year, which is just slightly below the threshold.
Personal Finance expert Martin Lewis has pointed out that the full new State Pension is £12,558 and the personal allowance is frozen at £12.570 until 2031 – which is the amount a person can earn tax free each year.
Mr Lewis has stated that the new state pension will be £30 below the allowance from April 2026. He explained: “So anyone who’s got any other form of earnings – well you’re going to go over it if you’ve got the full new state pension you will have to pay tax.
“But from 2027 because we know the state pension has to rise by a minimum 2.5 per cent because of the triple lock here’s a projection. The minimum it could rise because of the triple lock 2027 it’s going to be about £12,861, £300 more than the tax free allowance as that’s staying stable and it will go more and more and more.”
According to predictions on the Martin Lewis Money Show Live, the minimum new state pensions based on the lowest increase would be £12,861 in 2027, £13,183 in 2028, £13,512 in 2029 and £13,850 in 2030.
He continued: “So you can see the issue that’s going on. My main concern was the admin. How are we going to have 90-year-olds doing self assessment forms when they’re only earning £50 over the limit?” Mr Lewis referred back to his interview with Chancellor Rachel Reeves after the budget where he asked a question from a viewer named Rebecca: “Does my 85-year-old father who is living with dementia now have to complete a tax return as his state pension will take him over the personal allowance.”
Ms Reeves responded: “So if you just have a state pension and you don’t have any other pension you don’t have to fill in a tax return. I make that commitment for this Parliament. You’re right 2027 looks like the time it will cross over. We are working on a solution as we speak to ensure we’re not going after tiny amounts of money.”
