Rachel Reeves' state pension tax pledge could leave millions of pensioners behind

Chancellor Rachel Reeves has confirmed that pensioners whose only income comes from the state pension will not be required to pay income tax before the end of the decade.

This is despite the rapid rise towards the frozen £12,570 personal allowance.

Annual triple‑lock increases mean the full new state pension, paid to those who reached state pension age after April 2016, is expected to reach about £12,547.60 next year, leaving it just below the current tax threshold.

After the April 2027 uprating, however, the full payment is widely expected to exceed the personal allowance, which under normal rules would make the income taxable.

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Labour says pensioners who rely solely on the state pension will be protected from paying income tax once that happens.

But pensions specialist Hannah Martin, founder of Rich Retiree, warned the policy risks creating disparities between different groups of retirees.

“It could indeed lead to unfairness between different groups,” she said.

“It’s estimated that, of the 13.2 million people currently receiving a state pension, fewer than one million will be covered by the policy.”

She noted that most pensioners would not benefit from the protection and that people with similar overall retirement incomes could face different tax outcomes depending on how that income is structured.

“As an example, someone who only receives a basic state pension and tops it up through work or other means won’t benefit, even if they ultimately earn the same amount as someone claiming the full state pension,” she said.

Under that scenario, a pensioner receiving a lower state pension alongside part‑time earnings or income from savings could still face an income tax bill, while someone receiving only the full new state pension would remain exempt.

Ms Martin suggested ministers could instead raise the income tax allowance for pensioners so that anyone wholly dependent on the full new state pension would remain below the threshold.

“One alternative solution could be to increase the tax allowance for pensioners so that anyone wholly dependent on the new state pension would be under the tax threshold,” she said.

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“However, this would be an expensive revenue loss for the Government.”

She also proposed a broader option that would apply more evenly across retirees.

Ministers, she said, could “simplify the plan and just write off small tax bills to a defined sum for all pensioners — whether the income came from the state pension or not.”

Such an approach, she argued, would ensure pensioners with similar retirement incomes are treated consistently regardless of whether their income comes from the state pension, employment or other sources.

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