State pension ‘unfairness’ fears over tax change as these claimants ‘won’t benefit’ | Personal Finance | Finance

Major changes to how tax applies to the state pension could lead to disparities between different claimants. The update comes as the eligibility rules for the DWP benefit are also currently changing.

With the triple lock driving up the state pension, the full new state pension is getting very close to using up all the personal allownace and attracting an income tax bill. Payments rise each April in line with whichever is highest of 2.5 per cent, the rise in average earnings or inflation.

The fuill new state pension currently pays £241.30 a week, or just over £12,550 a year, which is very close to using up all the £12,570 personal allowance. With the triple lock boost from next April, those on the full new amount will definitely cross the line and have to pay income tax on their payments, under the current rules.

New tax policy

But Labour announced in the Autumn Budget 2025 that it would bring in a policy so those whose only income is the state pension without additional amounts would not have to pay the tax. HMRC officials said previously that legislation will be needed to enact the change.

Yet the particulars of the policy have yet to be set out and who exactly will benefit from the exemption. Hannah Martin, pensions expert and founder of Rich Retiree, warned the policy could lead to people with similar incomes being treated differently.

She warned: “It could indeed lead to unfairness between different groups. It’s estimated that, of the 13.2 million people currently receiving a state pension, fewer than one million will be covered by the policy.

Some pensioners ‘won’t benefit’

“As an example, someone who only receives a basic state pension and tops it up through work or other means won’t benefit, even if they ultimately earn the same amount as someone claiming the full state pension.”

She spoke about how the Government could try to avoid this issue: “One alternative solution could be to increase the tax allowance for pensioners so that anyone wholly dependent on the new state pension would be under the tax threshold. However, this would be an expensive revenue loss for the Government.”

“Or they could simplify the plan and just write off small tax bills to a defined sum for all pensioners – whether the income came from the state pension or not.”

Make sure you understand your situation

Given the tax rules are soon to become more complex, Ms Martin was asked what steps pensioners should take to ensure they are paying the right amount of tax. She said to make sure you are “fully aware” of your financial position.

The expert said: “This includes all income, including state pension, private pensions, savings and investments, property income, and part time work. It’s important to remember that the state pension is taxable and is paid to you gross, so you must declare it as income.

“Income that is not subject to tax includes ISAs, your annual personal savings allowance and annual dividend allowance and any income earned under the Rent a Room Allowance.”

Find out about your state pension

If you are claiming the state pension and you have a question about your claim, you can contact the Pension Service for help. If you want to call up, the number is 0800 731 0469, available Monday to Friday from 8am to 6pm.

If you are yet to begin claiming your state pension, you can check how much you are on track to receive and when you can claim it, using the state pension forecast tool on the gov.uk website.

Another key change that is currently underway is the state pension age is moving up. The access age is in the process of increasing from 66 to 67, with this move taking place in stages between April 2026 and April 2028.