Chancellor John Healey is reportedly preparing a targeted tax allowance for pensioners on low incomes in Wednesday’s Budget, amid concerns that an increase in the full new State Pension will push it above the standard income tax personal allowance.
According to reporting by The Times on 26 October, the Government is considering raising the tax-free allowance for eligible low-income pensioners to approximately £13,036. The measure has not yet been formally announced and its precise eligibility rules remain unconfirmed.
Why the £13,036 figure matters
The standard personal allowance is currently £12,570. The full new State Pension is expected to rise by 3.9% from April 2027, to approximately £13,036 a year. Without a targeted protection or other administrative measure, some people relying entirely on the State Pension could face small income tax liabilities.
The reported policy would be designed to prevent pensioners whose only income is the State Pension from having to pay income tax on that payment. It should not be interpreted as an increase in the personal allowance for all taxpayers or as a blanket exemption for everyone above State Pension age.
Existing Treasury commitment
In a parliamentary answer dated 15 October, Treasury minister Torsten Bell said that pensioners whose incomes only just exceed the personal allowance would not face the administrative burden of paying small amounts of tax during this Parliament, and that further details would be announced in Budget 2026. The answer did not confirm the proposed £13,036 threshold or eligibility mechanism.
Costs and eligibility remain uncertain
The Times reports that the measure could cost approximately £200 million annually by 2030. That is a reported estimate rather than a final Treasury costing. It is also reported that the protection could increase in line with future State Pension upratings, although the Government has not published detailed rules.
Pensioners with additional income, including private pensions, could remain liable for income tax. Analysts have raised questions about how any means-tested or targeted allowance would operate for people with modest amounts of additional retirement income.
Awaiting Wednesday's Budget
The Chancellor is expected to set out the Government's decisions on 28 October. Until then, the proposed threshold, its cost and its scope should be treated as reported plans rather than enacted policy.