Big changes coming to how pensioners are taxed in Britain
Key Points
- The full new State Pension rises 3.9% to £250.70 a week from April 2027
- That takes it to £13,036.40 a year, above the £12,570 personal allowance
- The government has promised State Pension-only retirees won’t pay income tax
- Details on how that works are expected in the 28 October Budget
- The triple lock will be replaced from 2030, Quilter said
The full new State Pension will rise above the tax-free personal allowance for the first time next April.
Investment firm Quilter said September’s 3.5% inflation figure, published on Wednesday (21 October), confirmed a 3.9% State Pension rise under the triple lock.
The triple lock raises the State Pension each April by the highest of inflation, earnings growth or 2.5%. Earnings growth set the April 2027 increase, which comes in 0.4 percentage points above inflation.
The rise takes the full new State Pension to £250.70 a week, or £13,036.40 a year, an increase of £488.80. That annual figure sits above the £12,570 personal allowance, the amount most people can earn before paying income tax.
The government has committed that pensioners whose only income is the State Pension will not pay income tax. Quilter said it expects the government to set out how this will work in the Budget on 28 October.
“The commitment to maintain the State Pension’s value relative to earnings over time is welcome, but pensioners need certainty not only over future uprating policy, but also over how their retirement income will be taxed in the years ahead,” said Jon Greer, Head of Retirement Policy at Quilter.
“Andy Burnham has confirmed that the triple lock will be replaced from 2030 with a guarantee based on the higher of inflation or 2.5%, alongside a longer-term earnings link that has yet to be set out in detail,” Greer said.
“While that new framework is likely to be less generous than the current system, if earnings continue to outpace inflation over the next few years, pensioners could still benefit from further meaningful increases before the reforms take effect,” he added.
Quilter’s latest Retirement Lifestyle Report found the State Pension makes up almost a quarter of retirement income on average.
Among retirees aged 65 to 79 with incomes of £25,000 or less, it provides 57% of their retirement income. For over-80s on below-average incomes, the State Pension accounts for 54% of what they live on.
