Although the state pension is taxable, many pensioners do not pay tax on it because the amount they receive is within their personal allowance. However, in recent years, the headroom between the state pension and the personal allowance has shrunk because the personal allowance has remained at £12,570 while the state pension has increased due to the application of the triple lock.

This has already increased the number of pensioners who pay income tax. In March 2026, the Office for Budget Responsibility reported that approximately 600,000 additional pensioners (for example, those with other income in addition to the state pension or those with an enhanced state pension) would need to pay income tax in 2026/27 as a result of the changes. 

Without action the situation would have developed further as, for 2027/28, the full rate of the new state pension (£13,037) will exceed the personal allowance (£12,570) for the first time. This would have meant more pensioners having to pay income tax. In addition, as many of those pensioners may not have another source of income from which the tax can be collected at source, it would have placed further burdens on the tax system, requiring pensioners to register for self assessment or receive simple assessments from HMRC. 

At the budget in November 2025, the then Chancellor, Rachel Reeves, announced that the Kier Starmer government would take action to address this issue. Further details were provided in Chancellor John Healey’s budget on 28 October 2026.

The new pension tax allowance

A person is eligible to receive the pension tax allowance where they are above state pension age at any point in that tax year. The pension tax allowance amount is calculated as 20% of the difference between the full rate of the new state pension and the personal allowance. It is essentially an age-related personal allowance that is subject to an income cap.

The allowance gives an extra tax-free allowance of up to £467, which means a pensioner can have income for 2027/28 of up to £13,037, regardless of the source, before they pay tax. If the person's income is between £13,037 and £13,319, the pension tax allowance is tapered by £1 for every £3 of income that is over £13,037. Anyone whose income is £13,319 or more will not receive the pension tax allowance.

The pension tax allowance will increase for 2028/29 and 2029/30 in line with increases in the state pension.

Further information is provided in the government’s Pension Tax Allowance Explainer.

Other changes

In September 2026, the Prime Minister announced that the way in which the triple lock is applied will change from April 2030. Further details are provided in this government factsheet.

Further information

• House of Commons Library: Taxation of State Pension
• Economy explainers: what is income tax? | ICAEW