Chancellor Rachel Reeves has shared an update about a major tax change affecting state pensioners. Her comments come as more pensioners will move into paying tax from this April when the triple lock takes effect.

The Labour Government set out in the Autumn Budget 2025 that it would bring in changes to people whose only income is the basic or new state pension without any increments, saying they “do not have to pay small amounts of tax” through simple assessment from the 2027/2028 tax year.

This change is needed as from April 2027, the full new state pension will use up almost the entire £12,570 a year personal allowance, meaning pensioners on this income alone will move into paying income tax. State pension payments will go up 4.8 per cent from April 2026, lifting the full new amount to £241.30 a week, or 12,547.60 a year, just over £20 away from using up all the personal allowance.

The triple lock policy ensures the state pension goes up by at least 2.5 per cent, so the full new rate will definitely cross the threshold into paying income tax from April 2027. The triple lock ensures payments rise in line with whichever is highest of the 2.5 per cent minimum, the rise in average earnings, or inflation.

HMRC officials previously told MPs that legislation would be needed to bring in this new tax exemption policy for state pensioners, and that this could come in the finance bill in Autumn 2026. Chancellor Rachel Reeves was asked by the Treasury Committee about what work is being done to enact the new policy.

£2,000 a year increase

She said: “From the beginning of April, the new state pension is going to go up by £575 a year, and over the course of this Parliament, it is forecast that the new state pension will be £2,000 a year higher by the end of the forecast, because of this Government’s commitment to the triple lock.

“The previous Government froze the income tax thresholds. It is in those years—for those freezes—that the new state pension will come into income tax if nothing is done, but I have committed to do something.

“We are working on how that will work at the moment, but we have been clear that, if your only income is from the new state pension, you will not be subject to income tax during the course of this Parliament. We will set out details later this year on how that will happen.”

In light of this response, committee chair Meg Hillier pointed to a particular case where a state pensioner may move into paying tax. She said: “But if you earned bank interest above the £5,000 threshold, or you had a small dividend, you would be subject to income tax.”

£5,000 allowance rule

This refers to the starter rate for savings, where you can earn up to £5,000 a year of interest from your savings each year tax-free. This reduces by £1 for each £1 that your earn above the £12,570 a year threshold, so you get no starter rate once your income reaches £17,570.

Separate from this allowance, basic rate taxpayers can earn up to £1,000 in interest tax-free. This reduces to £500 for higher rate taxpayers, while those on the additional rate get zero allowance.

Ms Reeves said in response: “It is already the case that most pensioners with any form of private income are taxed. We want, of course, to make that as simple as possible but, over the course of this Parliament – when we are in office – we will not be taxing people whose only income is from the new state pension.”