Sunita Somvanshi
For the first time since the personal tax allowance was frozen, the full UK state pension is set to exceed the tax-free threshold, and the government is acting to prevent roughly one million low-income pensioners from receiving an unexpected tax bill. Chancellor John Healey is expected to confirm the fix when he delivers the Autumn Budget on Wednesday, October 28.
The full new state pension rises 3.9 percent under the triple lock’s wage-growth component, moving from £12,547 in 2026–27 to £13,036 in 2027–28. The standard personal tax allowance is frozen at £12,570 under current HMRC rules until 2030–31. At £13,036, the pension exceeds the tax-free threshold by £466, generating an annual income tax liability of approximately £93 for pensioners with no other income. The government’s proposed remedy is a new pensioner-specific allowance matching the £13,036 figure, at an estimated Treasury cost of £200 million a year by the end of the decade.
If your only retirement income is the full new UK state pension, you will not owe income tax when payments rise to £13,036 in April 2027. However, the approximately 9.6 million pensioners who also receive workplace or private pensions remain subject to the frozen £12,570 allowance. If you hold any private pension income—even a small amount—Wednesday’s Budget requires close attention: without an explicit taper in the new rules, minor private income could strip the higher allowance away entirely, leaving a modest saver worse off than someone with no private savings at all.
The Private Pension Cliff-Edge and Old State Pension Gap
Former Pensions Minister Sir Steve Webb, now a partner at LCP, has warned of the design risk embedded in the proposed allowance. Without tapering, a retiree drawing even a small workplace pension could lose the £13,036 allowance and fall back to the £12,570 threshold. The tax on the £466 gap at the basic rate comes to £93.20 a year. That leaves a retiree with modest private savings paying more tax than a peer who saved nothing—penalising those who contributed to a workplace scheme throughout their working lives.
A separate gap affects recipients of the pre-April 2016 basic state pension, topped up through SERPS or the State Second Pension. Many relying solely on that two-tier system already receive combined totals above £12,570. Whether the £13,036 pensioner allowance applies to them, and how it interacts with their existing entitlement, has not been addressed in any pre-Budget announcement.
To protect nearly one million pensioners from an average annual tax bill of £93.20, the Treasury is creating a two-tier tax code that could penalise modest savers. Unless Chancellor Healey introduces tapering on Wednesday, a retiree with a small workplace pension could lose the £13,036 allowance entirely and pay more tax than a peer who saved nothing—making the policy actively worse for thrift than doing nothing at all.
What will the full new UK state pension be in April 2027? Under the triple lock’s 3.9 percent wage-growth increase, the full new UK state pension rises from £12,547 to £13,036 a year starting April 2027. Because this exceeds the standard £12,570 personal tax threshold by £466, the government is introducing a matching £13,036 tax-free allowance for pensioners who receive no other income.
When Chancellor Healey takes the despatch box on Wednesday, the details to watch are whether the new pensioner allowance includes an explicit income taper for those with small private pensions, and how the Treasury intends to treat pre-2016 basic state pension recipients whose combined state entitlement already sits above the standard threshold.
For related context, see Karmactive’s earlier coverage and latest explainer.
