Downing Street has confirmed that pensioners whose only income is the basic or new State Pension will not be required to pay income tax on it during this Parliament, after the latest earnings figures put the full new State Pension on course to rise above the tax-free Personal Allowance.
The intervention follows official labour-market figures showing average earnings growth of 3.9%, which is currently the figure likely to determine next April's State Pension increase under the triple lock unless September inflation is higher or the earnings figure is revised.
A 3.9% increase would take the full new State Pension from £241.30 to around £250.70 a week, equivalent to roughly £13,036 a year. That would put it above the current £12,570 Personal Allowance.
Downing Street confirms tax promise
Downing Street said work is already under way to ensure that anyone whose only income is the full new or basic State Pension, without increments, will not pay income tax during this Parliament.
The Prime Minister's official spokesperson said further details of how the commitment will be delivered will be set out by Chancellor John Healey at the Budget.
The pledge is significant because the State Pension is legally taxable income. Until now, someone relying solely on the full new State Pension has generally remained outside the income tax system because their pension has been below the Personal Allowance.
State Pension heading above £13,000
Under the triple lock, the State Pension rises each April by the highest of average earnings growth, September CPI inflation or 2.5%.
The latest earnings figure used for the calculation is 3.9%. If September inflation is lower and the earnings figure is not revised, that would determine the April 2027 increase.
A 3.9% uplift would increase the full new State Pension to approximately £250.70 a week, or around £13,036 a year.
The standard Personal Allowance is currently £12,570 and is scheduled to remain frozen, creating a potential tax liability for people whose sole income would otherwise consist entirely of the full new State Pension.
Exact mechanism has not yet been announced
Downing Street has confirmed the outcome it intends to deliver but the Treasury has not yet set out the detailed mechanism.
The Government previously said pensioners whose sole income is the basic or full new State Pension, without increments, would not have to pay small amounts of tax through HMRC's Simple Assessment system from 2027/28.
The House of Commons Library notes that further details of how the policy will operate have not yet been published.
The Chancellor is expected to provide further information at the Budget.
Promise does not necessarily cover other pension income
The commitment should not be interpreted as a general exemption from income tax for all pensioners.
Downing Street's confirmation specifically concerns people whose only income is the basic or full new State Pension without increments.
Pensioners with workplace pensions, private pensions, employment earnings, investment income or other taxable income may still have an income tax liability if their total taxable income exceeds their available allowances.
Downing Street has not yet set out whether any additional protection will apply to pensioners with relatively small amounts of other income.
State Pension remains taxable income
HMRC guidance continues to state that the State Pension is taxable income, although tax is not deducted before it is paid.
Normally, where a pensioner's total taxable income exceeds their Personal Allowance, tax can be collected through another pension provider or employment under PAYE. Someone whose only income is the State Pension can instead receive a Simple Assessment bill from HMRC.
The Government's commitment is intended to prevent State Pension-only retirees being drawn into that process simply because the full pension rises slightly above the frozen Personal Allowance.
Final pension increase not yet confirmed
The 3.9% increase is not yet the final confirmed State Pension uprating for April 2027.
The triple lock also takes account of September's CPI inflation figure. If that is higher than 3.9%, the inflation figure would instead determine the increase, while the earnings measure can also be revised.
The final rates will therefore be confirmed later, but the Government has now reiterated that pensioners relying solely on the basic or new State Pension will not be required to pay income tax on that income during this Parliament.