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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
More pensioners than ever are facing a tax bill, due to frozen thresholds. But if your only income is the state pension, you might be excused from the tax – for now.
The government has promised a special waiver from 2027 to ensure those relying solely on the state pension will not face an income tax bill. But this may create a ‘cliff edge’ for the majority of retirees who top up their state income with private pensions or savings, and even some of those relying solely on the ‘old’ state pension.
Here is how the proposed rules will work in practice, and what the freeze means for your tax liability from 2027.
What’s on this page?
The state pension (like other pensions) counts as taxable income. But because the full new state pension and the ‘old’ basic state pension are currently under the £12,570 personal allowance, you do not pay income tax if that’s your only income.
Currently the full new state pension is £11,973 a year and will rise to £12,547.60 for the 2026/27 tax year. The ‘old’ basic state pension is worth £9,175 a year currently and will rise to £9,615 from April 2026. Some people who get the ‘old’ state pension may already be paying income tax, if they get additional state pension on top.
You don’t pay any national insurance once you reach state pension age.
Any private pension income, or any other income that takes your total income above £12,570, is subject to income tax. The £12,570 personal allowance applies UK-wide, although Scotland has different income tax rates and bands to the rest of the UK.
Around 8.8 million pensioners already pay income tax, with more than 1 million in the 40% higher-rate tax bracket, according to figures obtained by pension consultancy LCP from a recent Freedom of Information (FOI) request to HMRC.
It was announced in the 2025 Budget that the personal allowance of £12,570 – the amount you can earn before you start paying income tax – will remain frozen until 2031. It was already frozen until 2028, and had been frozen since 2021.Frozen tax thresholds and an increasing state pension mean that the new state pension will be above the tax threshold from April 2027, since the triple lock means it will increase by a minimum of 2.5%.
For tax purposes, HMRC assesses how much state pension you receive each year by calculating one week at the previous tax year’s rate of state pension and 51 weeks at the new rate. Steve Webb, a partner at LCP, expects that the full new state pension will be a minimum of £292 over the tax threshold, which could mean a tax charge of £58.
Now the government has said it does not want to tax people who are solely reliant on the state pension. The chancellor, Rachel Reeves, has said that people who only receive the basic or new state pension and no other taxable income will have their tax waived.
In the full Budget 2025 document, the government said it would ease the administrative burden for pensioners “whose sole income is the basic or new state pension without any increments” so that they do not have to pay small amounts of tax from 2027/28 if the new or basic state pension exceeds the personal allowance from that point.
This will apply until the end of the parliament (likely to be in 2029, though it could possibly be earlier). The government said it is exploring the best way to achieve this and will set out more detail next year. Saga Money has approached the Treasury for comment.
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Many people with low pension incomes are likely to just miss out on the tax exemption. These include:
Some of these people may be able to pay income tax through simple assessment – a process that can be used for straightforward tax situations where there’s no need for a full self-assessment.
Webb says the government’s proposal is unfair to people on the old state pension with additional state pension, who might have a pension of exactly the same amount as the new state pension, yet would have to pay tax. “An old basic pension plus an additional state pension totalling around £12,860, for example, would result in a tax bill, but a new state pension would not,” he adds.
He also believes it is unfair that (presumably) just a few pounds a month from a private pension would be enough to disqualify someone from the tax reprieve. It’s also potentially unfair to a worker with a salary of the same amount and who would pay both tax and national insurance contributions (if they are under 66), whereas a pensioner on the same income would pay neither.
Maike Currie, VP of personal finance at pension provider PensionBee, says it is still unclear how the tax exemption will work. She says that the government will need to consider the policy carefully to make sure there is no unfairness.
“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,” she says.
“Without a clear, fair plan, there’s a risk of creating cliff edges and anomalies, where some pensioners pay tax on modest savings while others with the same income do not – something the government will need to resolve carefully.”
Anyone can choose to defer their state pension, which means you don’t start receiving it when you reach state pension age.
In return for delaying the payment, you get a higher weekly amount when you do start taking it – around 5.8% more state pension a year for life for every 12 months you defer.
This is already treated as taxable income and collected through PAYE or simple assessment. So there would likely be no change to this from April 2027, says Adam Cole, a retirement specialist at Quilter.
“The tax write-off only applies if your only income is the standard state pension. If you get extra payments such as the old state earnings related pension scheme (SERPS), or the later additional state pension, or if you paid to top up your pension in the past, you will not qualify because those extras can add hundreds of pounds a year,” he says.
“The aim is to stop people relying on the state pension alone from having to fill in tax forms for small tax bills.”
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