Rachel Reeves, during an interview with Martin Lewis, confirmed that individuals relying solely on the state pension as their income would not be subject to tax payments. In the recent Budget announcement, the Chancellor verified a 4.8% increase in the state pension, raising the full new state pension from £230.25 per week to £241.30 per week (£12,547.60 annually) by April 2026.
This adjustment places the state pension just below the £12,570 personal allowance threshold, which signifies the amount one can earn in a tax year without incurring tax obligations. Concerns were raised by analysts that millions of pensioners dependent solely on the state pension might face tax liabilities when the pension rises once more in April 2027.
The state pension experiences annual increments in line with the triple lock mechanism. The Chancellor also disclosed that individuals solely receiving the basic or new state pension would be exempt from paying minimal taxes through the Simple Assessment process.
The new full state pension is marginally under the £12,570 personal allowance, indicating its proximity to the tax threshold. In discussions with Martin Lewis, the Chancellor assured that individuals with only the state pension as income would be tax-exempt, at least for the current parliamentary term.
Looking ahead to 2027, Martin Lewis noted that the full new state pension would surpass the tax-free allowance, necessitating tax payments. While the Chancellor initially suggested no assessments would be required, Rachel Reeves clarified on the show that no taxes would be levied during the current parliamentary term.
Further details on the operational aspects of this exemption were not provided at the time. The triple lock mechanism ensures that the state pension escalates annually in alignment with the highest of earnings growth between May to July, September inflation rates, or a minimum of 2.5%.
The wage growth for May to July, standing at 4.8%, has been adopted for determining the state pension hike for April 2026.