Chancellor, Rachel Reeves, has confirmed that pensioners whose sole income is the basic or new state pension will not be required to pay tax on it, easing confusion after the government announced plans to ease the administrative burden on pensioners.

Speaking in an interview with Martin Lewis, Reeves said: “If you just have a state pension, we are not going to make you fill in a tax return of any type.”

Pressed on whether these pensioners would need to pay tax at all, she added: “In this Parliament, they won’t have to pay the tax. We’re looking at a simple workaround at the moment.”

The full new state pension is set to increase by 4.8 per cent next April, taking it to £241.30 per week (around £12,548 a year), while the basic state pension will rise to £184.90 per week (around £9,615 a year), after the government stood by its triple lock committment.

There was initial confusion after the Budget revealed that the government was looking at ways to relieve the "administrative burden" on pensioners who may face a tax bill as a result of the increase in the state pension, which industry experts warned could prove "horribly complex", given that the government hadn't confirmed that it would waive the tax altogether.

However, Reeves' latest update has provided clarity, with Hargreaves Lansdown head of retirement analysis, Helen Morrissey, suggesting that the confirmation will be "welcomed" by pensioners who are seeing their state pension move to within a whisker of this threshold from April and were worried about what the future might hold for them.

However, she warned that it is only a temporary reprieve, with the Chancellor only committing to this promise for the duration of this parliament.

Meanwhile, LCP partner, Steve Webb, suggested that the plan to exempt some state pensioners from income tax risks being "unfair and unworkable".

He highlighted that millions of pensioners already receive state pensions above the tax threshold, and that nothing has so far been done for them, creating a "real risk" that pensioners on the new system will be more favourably treated. 

"The new scheme also risks penalising people with small private pensions who will not be protected compared with those who have no private pension who will be protected," he continued, arguing that "this penalises those who have saved, even modest amounts.  

"And the new rules will mean that a pensioner just above the tax threshold will pay no tax whilst an employee on exactly the same income will pay both tax and NICs, which seems unfair," he added.

Concerns over the longer-term tax impact on pensioners have been heightened since the Budget, as Reeves also announced plans to extend the freeze on income tax thresholds, which could see many more pensioners paying tax in future years.

Wider questions are also emerging about the long-term shape of the UK state pension.

The government revived the Pensions Commission in July to examine the pension under-saving challenge facing mid-century retirees, including auto-enrolment outcomes, contribution rates and options for the self-employed.

The Commission will also consider the balance between different types of retirement provision, potentially opening the door to a fresh review of the state pension itself.

Alongside this, the government is undertaking its scheduled review of the state pension age.

The state pension age is already set to rise to 67 between 2026 and 2028 and to 68 in the mid-2040s, but updated life expectancy data could accelerate plans to bring the increase to age 68 into the late 2030s.

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