Martin Lewis has warned that pensioners face unanswered questions over the tax treatment of their retirement income, urging the Treasury to clarify how it will protect older people as the State Pension rises above the income tax threshold.
The personal finance expert and founder of MoneySavingExpert.com has identified the issue as one to watch in next week’s Budget, with ministers under pressure to explain how a promised exemption will work in practice.
The full new State Pension currently stands at £241.30 a week. Under the triple lock, payments rise annually by whichever is highest of earnings growth, inflation or 2.5 per cent. The latest wage figures mean the pension is due to increase by 3.9 per cent in April, taking the annual payment for those receiving the full amount to about £13,040.
That would put the State Pension above the £12,570 personal allowance, which has remained frozen for more than five years, raising concerns that pensioners could face income tax despite relying primarily on their state entitlement.
The Government has said people living solely on the full State Pension will not be required to pay tax simply because the annual payment exceeds the allowance. But Lewis argues that the crucial question is how the exemption will operate for people with even a small amount of additional income.
Writing on X, he said: “We now know someone who ONLY gets the full new state pension won’t pay tax. But it’s very important we understand the mechanism.
“For example, if someone has just £10 a year of other earnings, will they still have to pay tax? If so, that £10 of earnings will effectively cost them about £100 – the tax they’d pay without the exemption.”
His warning highlights a potential complication for pensioners who supplement their state income with modest earnings or other taxable receipts. Without clarity over the rules, people could struggle to understand whether small additional sums would trigger a tax liability, undermining the intended protection.
The Treasury has pledged to address the issue, but has yet to set out the detailed mechanism.
“In line with the commitment made at Budget 2025, pensioners who only just the exceed the personal allowance will not have the administrative burden of paying small amounts of tax in this Parliament,” a Treasury spokesperson said.
“The Chancellor will set out further details on how that commitment will be delivered at the Budget.”
The announcement will be closely watched as the Chancellor weighs competing demands on constrained public finances while seeking to support economic growth.
For pensioners, the issue is not simply the size of April’s increase, but how much of their retirement income they can actually keep. Lewis’s intervention puts pressure on ministers to ensure that a policy designed to prevent an administrative burden does not leave people uncertain about the tax consequences of earning even a few pounds more.
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