Major state pension personal tax threshold update as Treasury gives response

A major update has been given on a campaign to press Chancellor Rachel Reeves to stop the state pension from being taxed. A petition on the parliament website hit the key 10,000 signature target - and now the Treasury has responded.

Concerns are increasing that the triple lock will see people just getting the state pension taxed for the first time next year. The government has frozen the personal tax threshold since 2021 - with the lowest threshold at £12,570.

Earlier this year the ‘triple lock’ meant the full State Pension rose to £12,014 – close to the tax-free threshold of £12,570. The Office for Budget Responsibility is predicting inflation of 3.2% over the next year, and assuming average weekly earnings do not exceed this, the new State Pension would increase to £12,398.57 in 2026/27. This is just 1.4% below the current personal tax allowance - if inflation or earnings rise further it could mean people will start paying tax on all state pensions.

Royal London pensions expert Clare Moffat estimated that 21 million people aged 21 to 65 are unaware that the State Pension is taxable, “so it could come as a shock.” Martin Lewis has said: “The triple lock means the current headline £11,973/yr State Pension may rise above the £12,570/yr personal allowance in a few years time. So some whose only income is the State Pension would then pay tax on the portion above the personal allowance.”

The petition, which has reached 11,851 signups said: “We want the government to make the state pension tax exempt and not impact the tax threshold. We think it is wrong to tax the state pension.”

If the petition reaches 100,000 backers it could prompt a Parliament showdown, adding pressure to the government to make the change and state its position.

The Treasury yesterday (July 24) issued a formal response to the petition - and said current financial issued would make any change unlikely: “Exempting the State Pension from income tax would be expensive and add complexity to the tax system

“Exempting the State Pension from income tax would be expensive at a time when the Government has inherited a very challenging set of fiscal circumstances. Individuals earning above the higher rate threshold would benefit more than those with incomes below, and those earning below the Personal Allowance would not benefit at all.

“The Government keeps all taxes under review as part of the policy making process. The Chancellor will announce any changes to the tax system at fiscal events in the usual way.”#

To view the petition click here.