UK State Pension Tax: Reeves Pledges No Income Tax for Pension-Only Retirees

On 29 November 2025, the UK government moved to calm pensioner anxiety after a tax-heavy Budget sparked fears that millions of retirees could soon face income tax bills purely because of the state pension. Chancellor Rachel Reeves has now pledged that people whose only income is the state pension will not pay income tax during this parliament, even once the full new state pension rises above the frozen personal allowance. ^[1]

The promise, reported across the BBC, The Guardian and The Telegraph, has been followed today by detailed analysis and criticism in publications including The Times and the Financial Times, which warn that the move could create a “two-tier” system that favours pensioners without private savings and potentially penalises those who have put money aside. ^[2]

What exactly has the chancellor promised?

The pledge emerged in the aftermath of Reeves’ 2025 Budget and was clarified in an interview on ITV’s Martin Lewis Money Show.

A viewer asked whether her 85‑year‑old father, living with dementia, would have to complete a tax return once his rising state pension pushed him above the personal allowance. Reeves replied that if someone “just has a state pension” and no other pension income, the government will not make them fill in a tax return – and, crucially, that “in this parliament, they won’t have to pay the tax” either. ^[3]

The Budget document itself contains a more technical commitment:

From 2027‑28, the government plans to “ease the administrative burden” for pensioners whose sole income is the basic or new state pension, so they will not have to pay small amounts of tax via HMRC’s “simple assessment” system if the state pension creeps over the personal allowance. ^[4]

After the TV interview, the Treasury confirmed that this will go further than just paperwork: for this parliament, people whose only income is the state pension will not pay income tax on it at all, even if – on paper – their state pension exceeds the personal allowance. ^[5]

However, Reeves was explicit that she cannot make promises beyond the current parliament, which is expected to run until around 2029. ^[6]

Why was a tax bill looming for state pensioners?

The controversy stems from two big policy decisions that collide in the late 2020s:

The triple lock stays
Reeves has recommitted to the state pension “triple lock” for the rest of this parliament. That means the state pension rises each year by the highest of earnings growth, inflation, or 2.5%. ^[7]
Income tax thresholds are frozen until 2030‑31
At the same time, she is freezing income tax thresholds – including the £12,570 personal allowance – until the 2030‑31 tax year, dragging millions more people into tax over time as wages and pensions rise. ^[8]

Because earnings growth has been strong, the triple lock means the full new state pension is set to rise by 4.8% in April 2026, from £230.25 to £241.30 a week – about £12,547 a year, just under the £12,570 tax‑free allowance. ^[9]

If, from April 2027, the state pension rose by even the triple lock floor of 2.5%, it would then overtake the personal allowance, leaving someone on the full new state pension paying tax on roughly £292 of income – around £58 a year at the 20% basic rate. ^[10]

That looming, politically explosive moment is what Reeves’ new pledge is designed to defuse.

Who is protected – and who is not?

The detail that has emerged by 29 November makes clear that this is not a blanket tax cut for all pensioners. It is a narrowly targeted exemption.

Who is protected?

Based on the Budget wording and subsequent clarifications:

People whose only income is the state pension
Those receiving either the basic or the new state pension, with no other taxable income, will not:
- have to file a tax return, and
- pay income tax on their state pension during this parliament,
  even once the pension itself rises above £12,570. ^[11]
This protection covers many on the full new state pension, and some on the basic (“old”) state pension who do not also receive the additional state pension (Serps/S2P) or other top‑ups. ^[12]

Who is not protected?

Several large groups are excluded from the exemption:

Pensioners with even modest private or workplace pensions
If you receive the state pension plus a small defined benefit pension, annuity or drawdown income – even a few hundred pounds a year – you are still expected to pay tax on income above the frozen £12,570 personal allowance. ^[13]
People on the older state pension with additional state pension
Around 2.5 million pensioners on the old state pension already pay tax because their basic pension plus additional state pension exceeds the allowance. The government has given no indication that they will receive special treatment. ^[14]
Anyone with significant savings, rental or employment income
Reeves’ promise is framed around not taxing people whose sole income is the state pension. It does not protect those whose savings interest, dividends, rental income or part‑time earnings are enough to push them above the personal allowance. ^[15]

Critics argue this creates a “two‑tier system” in retirement: one group of pensioners with no private savings who will pay no tax on their state pension, and another – often people with small workplace pensions – who will still be taxed even when their total income is only slightly higher. ^[16]

Why are experts calling it a ‘two‑tier’ or ‘means‑test‑by‑proxy’ system?

Former pensions minister Steve Webb, now at consultancy LCP, has been one of the loudest critics. He points out that: ^[17]

Millions of pensioners already get more than the personal allowance from the state system and are taxed, with no sign they will be refunded.
Under Reeves’ plan, someone who never saved into a private pension could end up paying no tax, while a neighbour with the same state pension plus a small private top‑up could face a tax bill.

Coverage in The Times today goes further, saying the policy effectively “means‑tests the state pension by proxy” because it treats people differently depending on whether they have any additional pension income at all. ^[18]

The Financial Times also warns that the plan may be seen as a stealth increase in the personal allowance for a subset of pensioners, and that its long‑term cost and complexity are unknown because it was not formally costed in the Budget documents. ^[19]

Thinktanks such as the Institute for Fiscal Studies have already argued that the freeze in income tax thresholds hits lower‑ and middle‑income households hardest; bolting on a targeted exemption for some pensioners could further complicate what is already a highly complex tax system. ^[20]

How does this fit with Reeves’ wider tax‑raising Budget?

The state pension pledge sits in the shadow of Reeves’ £26bn tax‑raising Budget, which aimed to convince investors and the Office for Budget Responsibility that the UK can stabilise its public finances while funding extra spending on public services. ^[21]

Key elements of the wider tax package include:

Freezing income tax thresholds to 2030‑31, dragging more workers and pensioners into higher tax bands as their nominal incomes rise. ^[22]
Higher taxes on investment income, with increases in dividend, savings and rental income tax rates over the rest of the decade. ^[23]
A new “mansion tax” on high‑value homes and restrictions on the use of salary‑sacrifice pension arrangements, particularly for higher earners, which are expected to raise several billion pounds by 2030. ^[24]

Against that backdrop, today’s refinement of the state pension policy looks like a targeted political and administrative fix:

Politically, it shields one of the most electorally sensitive groups – pensioners on low incomes – from being seen to pay more tax.
Administratively, it acknowledges that chasing £50–£60 of tax a year from people with no other income is resource‑intensive for HMRC and distressing for many older and vulnerable pensioners. ^[25]

What questions are still unanswered?

Even with today’s coverage, there are important gaps in what we know.

1. What counts as “no other income”?

The government has not yet published a precise legal definition of “sole income from the state pension”.

Key open questions include:

Will any taxable income – for example, a small amount of bank interest or a few hundred pounds of rental income – disqualify a pensioner from the exemption?
How will the policy interact with existing allowances like the starting rate for savings or the personal savings allowance?

The lack of clarity has already sparked lively debate on pensions forums, where contributors note that the current messaging is “as clear as mud” and warn that the detail could have big implications for how people take small pensions or savings income. ^[26]

The Budget document itself admits the government is still “exploring the best way to achieve this” and will set out more details next year. ^[27]

2. How will the exemption work technically?

Reeves has talked about finding a “simple workaround” so HMRC is not “going after tiny amounts of money”. In practice, that could mean: ^[28]

Adjusting the PAYE coding on the state pension so that pension‑only recipients are treated as if they have enough allowance to cover it; or
Creating a specific statutory disregard for state pension income where it is the only income.

Each option could have different knock‑on effects for means‑tested benefits, tax credits and the way HMRC’s systems identify people who should be in self‑assessment.

3. What happens after this parliament?

Reeves has been careful to limit her promise to this parliament only. There is no guarantee that a future government – or even the same government after the next election – will maintain the exemption once the state pension is clearly above the personal allowance. ^[29]

That uncertainty could complicate long‑term retirement planning, especially if the triple lock continues to push the state pension higher in real terms.

What could this mean in practice? (Illustrative examples)

These are simple, hypothetical examples to show how the policy might work if implemented as currently described. They are not personal advice.

Example 1: Pension‑only retiree

Anne, 67, receives the full new state pension, which is expected to reach around £12,547 a year from April 2026 and to move above £12,570 from 2027 if triple lock increases continue. ^[30]
She has no other income – no private pension, no paid work, negligible savings interest.

Under Reeves’ pledge for this parliament:

Anne would not have to complete a tax return and would not pay income tax on her state pension, even once it is technically above the personal allowance.

Without the pledge, Anne might have paid roughly £58 a year in tax once her pension exceeded £12,570 – small in fiscal terms, but symbolically significant and administratively messy. ^[31]

Example 2: Saver with a small private pension

Brian, 69, also gets the full new state pension.
He receives an extra £2,000 a year from a small workplace pension.

Total income: about £14,500, well above the £12,570 allowance.

Under current rules and the proposed exemption:

Brian would still pay income tax on income above £12,570 – in other words, on around £1,930 of his income.
His tax bill would be roughly £386 a year at the 20% basic rate (exact figures would depend on the final pension amount and any other allowances).

This is why critics say the policy risks penalising people who have saved modest amounts, while giving more generous treatment to those who rely solely on the state. ^[32]

What should pensioners do now?

For now, the state pension tax pledge is a policy intention, not a fully‑fleshed law:

The key change takes effect only once the state pension exceeds the personal allowance, which is expected to happen around 2027, not immediately. ^[33]
The Treasury and HMRC still need to design the technical mechanism and publish detailed rules, likely after consultation in 2026. ^[34]

In practical terms:

Pension‑only retirees can take some comfort that the government intends to shield them from small tax bills and the stress of tax returns – at least for this parliament.
Those with private pensions, savings or other income should assume that the normal tax rules continue to apply and that the freeze in tax thresholds will steadily increase the share of their income that is taxed.

Anyone worried about their own position should keep an eye on future HMRC guidance and, if necessary, seek help from reputable sources such as MoneyHelper, Citizens Advice or a regulated financial adviser, rather than making major decisions based purely on early political announcements. ^[35]

Salary Sacrifice: will you be hit by pension tax changes?