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John Healey just changed the state pension rules – and he’s made it really complicated
The full new state pension is due to rise by 3.9% next April to £13,036.40 a year, exceeding the frozen £12,570 personal allowance for the first time. To prevent some low-income pensioners paying tax on their state pension, John Healey has introduced a Pension Tax Allowance, though critics say its design creates confusing rules and gaps in support.
The allowance is intended to give up to £94 in relief to people with total income between £12,570 and £13,037, then taper by £1 for every £3 of extra income, disappearing at £13,319. HMRC will apply it automatically, and the measure is expected to cost £45 million in its first year and run for three tax years to April 2030 before review. One example cited is a pensioner with income of £13,324 who misses the cut-off by £5 and faces a £150.80 tax bill; savings interest may count towards the income test, while ISA income does not.
In short
- The state pension will exceed the frozen personal allowance next April.
- A new relief of up to £94 tapers out at £13,319 income.
- Critics warn a small income difference can mean losing all support.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The allowance offers targeted relief to pensioners whose state pension is only just above the frozen personal allowance, reducing the risk that a modest annual increase triggers an unexpected tax bill. Automatic application avoids requiring people to navigate a claim, while the taper directs support towards lower incomes and gives the government a time-limited measure it can review.
The case against
The narrow thresholds and taper can make the rules difficult to understand, and small differences in income can produce sharply different outcomes, as the example of someone just above the cut-off illustrates. Counting savings interest while excluding ISA income adds complexity, and the three-year limit leaves uncertainty about support after the measure ends.
Explained simply
The state pension is a regular payment from the government to people who have reached pension age, with the amount depending partly on their National Insurance record. Most people also have a personal allowance: the amount they can receive each year before paying income tax. The allowance is currently frozen at £12,570.
John Healey is the minister responsible for defence, while pension and tax policy is set by the government and administered by HM Revenue and Customs (HMRC). When the state pension rises above the personal allowance, some pensioners with no other income could face tax on part of it; other income, such as savings interest, can also affect their tax position.
The issue matters because small differences in income can change whether someone owes tax, while ISA income is treated differently from savings interest outside an ISA. The proposed relief is time-limited, so its rules affect how pensioners’ tax bills are worked out over the next few years.