State Pension Tax Changes Explained – Who Benefits and Who Doesn’t?

There’s been a lot of talk recently about pensioners and tax — particularly whether people will soon start paying income tax on the state pension. On the surface, a recent announcement sounds reassuring. But once you look a little closer, it turns out the reality is more nuanced. This post explains what’s changing, who actually benefits, and why the bigger issue hasn’t really gone away.

Why this issue has appeared now

The personal income tax allowance has been frozen at £12,570 and is set to stay that way for several more years. At the same time, the state pension continues to rise under the the triple lock . By April 2027, the full new state pension is expected to exceed the tax-free allowance for the first time. That means some pensioners would normally start paying income tax even if the state pension was their only income.

How tax on the state pension normally works

The state pension has always been taxable income. If your total income goes above your personal allowance and there’s no PAYE source (such as a job or private pension), HMRC usually collects the tax later using Simple Assessment.

• A bill arriving after the end of the tax year
• A small amount due, but unexpected
• Confusion for people who’ve never dealt with tax paperwork before

What the Chancellor has said

Rachel Reeves has said that people whose only income is the state pension will not have to pay those small amounts of tax during this Parliament. This goes beyond simplifying paperwork — in practice, it means the tax won’t be collected at all for that group, at least for now.

Who benefits from this change

This mainly helps pensioners who:

• Rely entirely on the state pension
• Have no private pension
• No earnings
• No taxable savings income

For them, it removes small tax bills and the stress of dealing with HMRC letters.

Who doesn’t

Most pensioners won’t benefit. Around three-quarters of pensioners already pay income tax because they have:

• A private or workplace pension
• Additional state pension (such as SERPS)
• Savings interest
• Or part-time work

Two people with the same total income can be treated differently simply because their income comes from different sources.

A personal reality check

I’m not pretending I shouldn’t pay tax. I have a pension, I still work part-time, and I’m fortunate enough to have modest savings and a small trickle of income from YouTube AdSense. But I still get that little “hang on…” moment when I see tax on pension income — because emotionally, it feels like money I’ve already paid tax on once. This isn’t a complaint. It’s just the reality of how retirement income works now — where everything is added together and quietly assessed.

One thing that is worth checking

If you’re married or in a civil partnership, Marriage Allowance is well worth a look. If one partner earns below the personal allowance, up to 10% of their unused allowance can be transferred to the other partner. Many people are entitled to it but don’t realise it.

• GOV.UK – Marriage Allowance explained
• Apply for Marriage Allowance

The bigger issue hasn’t gone away

This policy may remove a small tax bill for some pensioners. But it doesn’t fix the underlying problem. Frozen tax thresholds and a rising state pension are still on a collision course.

Final thought

If you’re approaching retirement — or already there — this is a good reminder to:

• Look at all income together
• Not assume small extras don’t matter
• Check allowances you might be missing

Because they often do make a difference. Learn more about life after 60 and why SixtyRocks exists.