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Join Which? MoneyState pension recipients with the lowest incomes given new tax-free allowance
Tax-free threshold to be raised to £13,036 but not all retirees will benefit
The government has provided a boost for low-income pensioners in today’s Budget.
It has announced that it's raising the personal allowance – the amount you can earn tax-free each year – for those mainly reliant on the state pension.
The move could save pensioners on very low incomes £93 a year, and more in future.
But those who've saved more into their pensions will benefit less, with many not benefiting at all.
Here we explain whether you could be among those paying less tax on their state pension.
- Find out more: Autumn Budget 2026 key points
What is changing for some state pensioners?
It has now been confirmed that the state pension is increasing by 3.9% in line with wages to £13,036 a year in 2027-28, for the new state pension (up from £12,548 in 2026-27).
With the personal tax-free allowance still frozen at £12,570 – and plans to keep it frozen until 2031 – some pensioners might have been forced to pay tax on their state pension payments for the first time.
In 2025, the government first said that once the state pension is above the frozen personal allowance, pensioners whose sole income is the state pension would not be faced with the task of completing simple assessment tax returns to settle a possible bill.
Today we received details of how this policy will work to ensure these people do not pay income tax. It will now apply not only to those only receiving the state pension.
The new Pension Tax Allowance (PTA) will be calculated by applying the basic rate of income tax (20%) to the difference between the full new state pension and the personal allowance. For example, the difference in 2027-2028 will be £466, meaning a PTA of £93.
For those with incomes just above the value of the full new state pension, the allowance will be gradually withdrawn through a taper.
For every £3 you earn above the new state pension (currently £13,037), the PTA drops by £1. So above £13,316 you won't get a PTA.
The PTA will apply from 6 April 2027 until 5 April 2030 and will be uprated each year in line with the annual increase in the state pension.
- Find out more: how much is the state pension?
Who will benefit?
Pensioners in the UK pay income tax on their total taxable income, be it via the state pension, private pensions or other earnings, at standard rates with the same allowances as workers.
Tom Selby, director of public policy at investment platform AJ Bell, has questioned whether the new approach delivers a fair outcome: ‘The change means people who primarily only have state pension income benefit, while those who have saved privately probably don’t.
'Those who have saved could understandably argue that their diligent behaviour has effectively been punished.'
Our pension tax calculator will allow you to work out how much you'll have to pay on your retirement income.
Saving into your pension still pays off
Although the introduction of the Pension Tax Allowance will give those with no private pensions a small advantage, they face a tough time making ends meet.
The state pension is only enough for a couple to enjoy a 'minimum living standard', according to Pensions UK.
There's not much to enjoy: think one week-long UK holiday a year, and no car. And that assumes you don't have any housing costs.
Building up your own pension savings gives you a chance to live a more comfortable retirement. Plus, saving into a pension is one of the most efficient ways of saving, as you benefit from tax relief.
- Find out more: How much will I need to retire?
How much will it save people?
The announcement will provide some relief to older people facing the prospect of the personal allowance being frozen until April 2031.
The rise in allowance will save those concerned around £93 in the 2027-28 tax year.
Standard Life has calculated that this rise to nearly £770 over the duration of the personal allowance freeze, based on the minimum 2.5% state pension rise.
If annual increases in the state pension are higher, the benefit to the affected group of pensioners could be greater.
- Find out more: pension tax calculator
The triple lock continues to push up payments
Part of the reason that state pension payments are now surpassing the personal allowance is the positive effect of the ‘triple lock guarantee’ over the past 15 years.
The triple lock, which has been in place since 2011, guarantees that the state pension will rise each April by a minimum of 2.5%.
Increases could be higher than 2.5% if average earnings growth or inflation - the other parts of the triple lock - are higher.
In April 2027, the state pension will rise by 3.9% in line with average earnings growth, as this was the highest of the three triple lock measures.
Figures from the Institute for Fiscal Studies (IFS) indicate that the new state pension is around 14% higher in real terms than it would have been had it only tracked average earnings since 2011.
Prime Minister Andy Burnham has, however, previously announced plans to change the arrangement to a 'double lock' in 2030 by removing the direct link to average wage growth. Chancellor John Healey repeated this commitment in the Budget.
This is forecast to save £15bn a year by the end of the 2030s.
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