Rachel Reeves, in an interview with Martin Lewis, confirmed that individuals relying solely on the state pension as their income will be exempt from paying taxes. The Chancellor announced in the Budget that the state pension will see a 4.8% increase, raising the full new state pension from £230.25 to £241.30 per week (£12,547.60 annually) by April 2026.
This adjustment places the state pension just under the £12,570 personal allowance threshold, which signifies the amount one can earn in a tax year before facing taxation. Analysts had cautioned that millions of pensioners dependent solely on the state pension might be subject to paying tax as it rises in April 2027.
The state pension escalates annually in accordance with the triple lock mechanism. The Chancellor also outlined that individuals receiving only the basic or new state pension will not be subjected to small tax payments through Simple Assessment.
Although the new full state pension is nearing the £12,570 personal allowance threshold, Reeves assured in an interview with Martin Lewis that those with the state pension as their sole income will remain tax-exempt during this parliamentary term. However, beyond this term, no commitments have been made regarding taxation. Lewis emphasized that from 2027, the full new state pension will surpass the tax-free allowance, necessitating tax payments.
Reeves did not elaborate further on the operational details of this tax exemption during the Budget announcement. The triple lock ensures that the state pension increases every April based on the highest of earnings growth between May to July, September inflation rate, or 2.5%. The current 4.8% wage growth from May to July dictates the state pension increase for April 2026.