State pension breaches tax threshold

The full new state pension will exceed £13,000 per year from April 2027, surpassing the £12,570 personal allowance for the first time due to the triple lock mechanism.

How the triple lock works

The triple lock mechanism increases the state pension by whichever is highest: wage growth, inflation, or 2.5%. From April 2027, it will rise 3.9% in line with earnings growth.

The tax-free personal allowance

The first £12,570 of taxable income per year is tax-free. Many retirees haven't paid tax on their state pension because it stayed below this threshold until now.

Government pledges no tax on state pension

The government confirmed that pensioners receiving only state pension income won't pay tax, even if it exceeds the personal allowance. This applies from April 2027 onwards during this parliament.

“Pensioners who only just exceed the personal allowance will not have the administrative burden of paying small amounts of tax in this Parliament.”

How the exemption will work

The exact system hasn't been confirmed yet, but it will ease the administrative burden by preventing pensioners from having to pay small amounts of tax via simple assessment. Details will be released at the Autumn Budget.

Other pension income still taxed

If you receive income from a workplace pension or part-time work alongside your state pension, you'll likely owe income tax. Your pension provider usually deducts tax automatically through PAYE.

What is simple assessment

Simple assessment is how HMRC collects tax when self-assessment isn't required but PAYE can't be used. Pensioners would have faced this for state pension income, but the government's exemption means they'll likely avoid it.