Chancellor Rachel Reeves has unveiled a significant new policy aimed at protecting state pensioners from income tax demands, pledging that those whose sole income is the state pension will not be required to pay tax on it for the duration of the current parliament.
The Chancellor's Tax Pledge
In an exclusive interview with Money Saving Expert founder Martin Lewis on ITV, the Labour Chancellor laid out her plans for a simple "workaround" to a looming fiscal issue. The core of her commitment is clear: people whose state pension exceeds the personal allowance threshold will not face an income tax bill on that income under this government.
"If you just have a state pension, and you don't have any other pension, we are not going to make you fill in a tax return of any type," Ms Reeves stated. "I make a commitment for that for this parliament."
Addressing the 2027 Threshold Crossing
The policy directly addresses a known future problem. With state pension increases, it is projected that the full New State Pension will surpass the standard Personal Allowance around 2027. This would technically push hundreds of thousands of pensioners into the tax system for the first time, requiring them to complete self-assessment forms for potentially very small tax liabilities.
"You're right, 2027 looks like the time that it will cross over," Reeves acknowledged to Martin Lewis. "But we are working on a solution as we speak to ensure that we're not going after tiny amounts of money."
Clarification on Tax Liability vs. Administration
During the interview, Martin Lewis sought crucial clarification, asking whether the Chancellor meant pensioners "will not have to pay tax" or simply "they just won't need to fill in a tax return." Ms Reeves' response was definitive: "In this parliament, they won't have to pay the tax. We're looking at a simple workaround at the moment."
She did confirm, however, that this protection applies specifically to the state pension. Lewis clarified: "If you have any other earnings, you will have to pay tax on it."
State Pension Increases for 2025/26
The announcement comes alongside the confirmed increases to the state pension for the upcoming financial year:
- The full New State Pension will rise from £230.25 per week to £241.30. This applies to those who reached State Pension age after April 2016.
- The full Old State Pension (Basic State Pension) will increase from £176.45 per week to £184.90. This applies to those who reached State Pension age before April 2016.
According to Money Saving Expert, nearly 64% of state pensioners are on the Old State Pension, meaning they will receive a smaller weekly cash increase but are still covered by the Chancellor's new tax commitment.
The move is being framed as a practical and compassionate measure to simplify the tax system and protect retirees with modest incomes from unnecessary bureaucracy and financial worry.
