Chancellor clarifies tax change on state pension

Newsletter issue – January 2026

Following the Autumn Budget, the Chancellor has had to clarify what she meant when she said that nobody would pay tax on their state pension despite it certainly being higher than the personal allowance by April 2027.

From April 2026, the new state pension will be about £20 below the frozen personal allowance. Due to that freeze and the triple lock guarantee, the state pension will grow to exceed £12,570 from April 2027 and so be liable for tax. However, Rachel Reeves has now clarified that pensioners relying solely on the state pension will not have to pay tax on the amount that exceeds the personal allowance.

This has come as a relief for older people. But some have called it 'inter-generational unfairness', as working people on modest incomes won't have the same benefit when they are dragged into a higher tax band due to the freeze on the personal allowance. The Chancellor did acknowledge that she is 'asking ordinary people to pay a little bit more'.

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