People on State Pension with no other income won’t pay tax

06 January 2026

The government has announced that thousands of people whose only income is from the State Pension will not have to pay tax.

There were fears that due to tax thresholds being frozen, increases in State Pension would take it above the threshold in April 2027. That would push thousands of people whose only income is the State Pension into paying income tax.

The announcement from Chancellor Rachel Reeves in the 2025 Budget promises that people who rely purely on the State Pension will not have to pay tax before 2030. This includes pensioners on the New State Pension, who will receive up to £12,547.60 next year, which is only a few pounds below the income tax threshold of £12,570. 

With the threshold frozen, the portion of pension income over this threshold would be taxed without this pledge from the government. 

Although this will be of comfort to many, there are some concerns about people who will miss out on the promise of tax-fee income, potentially including:

• People who receive the ‘old’ Basic State Pension and some additional State Pension: that additional payment would still be liable for income tax.

• Those receiving the State Pension with a modest source of extra income, such as interest from savings or investments, a private or workplace pension or an annuity, which tips them over the tax threshold.

• Those who are not eligible for the State Pension but have a private or workplace pension.

• People who deferred their State Pension.

A ‘real risk’ of unfairness

Reacting to the announcement, Steve Webb, partner at pension consultants LCP and former pensions minister, said: “There is a real risk that pensioners on the new [State Pension] system will be more favourably treated." 

He also pointed out that: “There is no costing for this policy in the Budget documents which suggests that it is still very much an idea rather than a firm plan. But it will be incredibly difficult for the Treasury to come up with something that is workable and fair."

Rachel Vahey, head of public policy at investment platform AJ Bell, said: "Collecting the little bits of tax owed from millions of pensioners was always going to be an administrative headache for the government.

"It's no wonder they've put their tax collecting thinking caps on to find ways to avoid it, but we will have to wait and see what process they come up with and whether it will indeed make pensioners' lives simpler."

Maike Currie of PensionBee says work will be needed to make sure the policy is implemented fairly: “Could someone with even a small private pension that pushes them over the allowance miss out on a tax break while a neighbour on the same income from the state pension pays nothing? That potential unfairness will need careful resolution.” 

The government said it is exploring the best way to implement this pledge and will set out more details next year.