The Department for Work and Pensions (DWP) has issued a warning to state pension claimants about potential tax code adjustments as the full new state pension is set to exceed the personal allowance threshold from April 2026. The Labour government announced at the Autumn Budget 2025 a new tax exemption for certain pensioners, but details remain unclear.
New Tax Exemption for State Pensioners
The policy will ensure that individuals whose only income is the state pension, without any additional increments, will not pay income tax on their payments. Currently, each person can earn up to £12,570 a year without paying income tax, known as the personal allowance. However, the full new state pension is now very close to using up this allowance.
The full new rate is currently £241.30 per week, or £12,547.60 per year, leaving just over £50 before the personal allowance is fully consumed and a tax bill is triggered. The upcoming April payment hike, driven by the triple lock mechanism, will push the full new state pension over the threshold.
Triple Lock and Impact on Pensioners
The triple lock ensures state pensions rise each April in line with the highest of three measures: inflation, average earnings growth, or 2.5 per cent. This year's increase will definitively move the full new state pension above the personal allowance, meaning under current rules, some pensioners with no other income would have to pay income tax.
Rowan Harding, financial planner at wealth management group Path Financial, explained how the new policy could be implemented. She said: "State pension is already paid to individuals with no income tax deduction. Generally a tax code adjustment or a self assessment is used as the method for collecting the correct amount of income tax. We would expect these methods would continue to be used and factor in the accurate identification of individuals who only receive a state pension income and no other taxable income."
Continued Review Needed
Harding added that there will need to be some form of "continued review" each tax year as this group of pensioners will change. An HM Treasury spokesperson stated: "Anyone whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that over this Parliament. By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7."
