State pensioners will be £537 better off after a state pension rule change from HMRC, experts say.

The Centre for Policy Studies (CPS) has analysed the impact of a rule change announced by Chancellor Rachel Reeves which will see state pensioners avoid paying tax on their DWP benefit.

Martin then told her: “I hadn’t actually got that from the Budget so that’s really good to have that clarity that people won’t be paying the tax.”

Thanks to the state pension triple lock guaranteeing increases in line with inflation, earnings or 2.5%, a pensioner could expect to be at least £306 better off in real terms in 2030-31 than in 2025-26.

If, as the Chancellor has indicated, she will exempt people relying on the state pension from paying income tax even once the payment crosses the personal allowance threshold, they could be £537 better off in real terms, the CPS says.

Ms Reeves set out that the tax exemption will only apply to state pensioners who have no other income apart from the state pension. Those with a private pension of any amount, income from work, property or savings will still have to pay tax as expected. It is only those who rely solely on the state pension who will be exempted from paying tax on it. Apart from that, the government has not yet shared any further details about how the scheme will work.

At the same time, the CPS says someone earning £50,000 today would be £505 worse off by 2030-31 in real terms.

Daniel Herring, CPS head of economic and fiscal policy, said: “Labour’s tax policy is quietly hammering workers while protecting pensioners and benefit recipients.

“Freezing the personal allowance for income tax will hit everyone, but it’s those who are dragged into higher tax bands who will really suffer, to the point where a worker on £50,000 today is set to actually be poorer in five years’ time, despite getting pay rises.

“Meanwhile, the state pension and universal credit will both be worth more in real terms.

“This is fiscal drag in action, raising taxes for millions of workers through the back door.”