Government Reviews Personal Allowance for Pensioners Ahead of Budget

The UK Government is currently evaluating the possibility of increasing the Personal Allowance for pensioners as part of its ongoing commitment to support retirees. Earlier this year, the Labour Government confirmed that the Personal Allowance would remain frozen at £12,570 until April 2028. This decision has raised concerns among some lawmakers, particularly as the full New State Pension is projected to reach £12,547 next year, leaving pensioners just £23 short of the income tax threshold, according to the Daily Record.

In a recent inquiry, Liberal Democrat MP Dr. Al Pinkerton questioned the potential benefits of raising the Personal Allowance for individuals over State Pension age. Responding to this query, Treasury Minister Dan Tomlinson stated that the UK Government consistently reviews all tax policies as part of its decision-making process. He emphasized that any adjustments to the tax framework will be disclosed by Chancellor Rachel Reeves during fiscal announcements, with the next update slated for the Autumn Budget on November 26, 2025.

Tomlinson highlighted that, through the commitment to protect the Triple Lock system, over 12 million pensioners benefited from a 4.1 percent increase in their Basic or New State Pension in April 2025. He noted that during this Parliament, the full yearly rate of the New State Pension is anticipated to rise by around £1,900, based on forecasts from the Office for Budget Responsibility. The Personal Allowance, which determines the amount an individual can earn before tax, is expected to exceed both the basic and full new State Pension rates in 2025/26. Consequently, pensioners relying solely on their State Pension will not incur income tax.

The Triple Lock mechanism ensures that both the New and Basic State Pensions increase annually according to the highest of three measures: average earnings growth, the Consumer Price Index (CPI) inflation rate, or a fixed rate of 2.5 percent. As earnings growth recently reached 4.8 percent, those on the full New State Pension can expect weekly payments of £241.30, while recipients of the maximum Basic State Pension will receive approximately £184.90 per week.

The Secretary of State for Work and Pensions, Pat McFadden, is mandated to conduct an annual review of the State Pension and associated benefits, with results to be announced in November. The anticipated 4.8 percent increase means that individuals claiming the full New State Pension could receive about £12,548 annually, while those on the full Basic State Pension could see their yearly income rise to approximately £9,615.

While this increase will provide much-needed financial support to many pensioners, it may also lead to a higher number of elderly individuals facing income tax liabilities. Claire Trott, Head of Advice at St James’s Place, commented on the implications of the increase, stating, “While the boost will be welcomed by many, it also pushes the New State Pension just below the Personal Allowance, potentially nudging more pensioners into the tax bracket.”

It is essential for pensioners to be aware that their tax obligations will depend on their total annual income. As outlined by guidance on the UK Government’s official website, individuals may be required to pay tax if their combined income exceeds the Personal Allowance threshold. To assist retirees in understanding their tax responsibilities, the Government provides an online tool to check if they are liable for tax on their pensions.

As the Government prepares for the upcoming budget announcement, pensioners and stakeholders will be watching closely to see if any adjustments to the Personal Allowance will be implemented, potentially impacting the financial landscape for retirees across the UK.