State pensioners are being given two new rules by Andy Burnham and his new Chancellor, John Healey, which will hand them a boost worth £8,000 and a tax exemption which could be worth at least £58 a year on top.
This week, it was confirmed that Cash ISA limits will be cut to £12,000, down from the current £20,000 limit, as of April 2027, in a move first announced by former Chancellor Rachel Reeves but now to be carried out under Andy Burnham and John Healey’s stewardship. But, the pair will also retain Reeves’ rule for over-65s, meaning all state pensioners, and a few over-65s who are just about to hit state pension age, will be able to keep their full Cash ISA allowance of £20,000, an £8,000 boost to Cash ISA deposit limits compared to under-65s.
And another rule first announced by Rachel Reeves will also be implemented under Andy Burnham: the tax exemption for state pensioners who rely solely on DWP state pension payments.
Andy Burnham has confirmed the exemption for state pensioners (Image: Getty)
Before her departure as Chancellor, Rachel Reeves announced via the Martin Lewis Money Show Live on ITV1 that state pensioners who do not have any other income other than the state pension would not be made to pay income tax.
Initially, she had reported in her Budget speech to Parliament that pensioners would not be made to pay ‘small amounts of tax via self-assessment’, but the next day she clarified that this actually meant pensioners would pay no tax at all, much to Martin Lewis’ surprise, as long as they had no other income.
Since then, new PM Andy Burnham and his new Chancellor John Healey have, via HM Treasury, confirmed to the i Paper that they are committed to this policy and will ensure state pensioners are not dragged into paying tax.
Next April is when the issue would have become a problem, as the triple lock increase – itself a policy now being axed by Mr Burnham, but not until 2030 – would increase post-2016 state pension payments to beyond the frozen £12,570 threshold, pushing state pensioners who had never been paying tax before into paying tax on their DWP benefit payments for the first time.
Crucially, state pensioners have always been liable to pay tax, but those with no other income have never collected enough from the state pension to exceed the threshold. But this will change in April 2027.
In April 2027, even the minimum 2.5% increase would push pension payments to more than an estimated £12,861 for a new, post-2016 state pensioner with a full National Insurance record.
If state pensioners were to pay tax on this at 20%, then approximately £291 would have been taxable, which would result in a bill of £58.20 for a 20% taxpayer. And if the triple lock rose by a larger amount, as it is likely to do, the bill would be higher still, possibly in three figures.
State pensioners who have no other income, such as a private pension, earnings, savings interest, or rental income, will not be required to pay this bill and will be exempt.
Some older state pensioners, of course, are already paying tax. Now-defunct schemes such as the Second State Pension (SERPs), already boost basic state pensioners’ income to beyond the tax threshold today. HM Treasury confirmed to the Express earlier this year that older state pensioners’ ‘incremental payments’ such as SERPs would not be exempted from tax.
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Andy Burnham’s Chancellor John Healey has not yet revealed the full extent of his spending plans – or their costings – but the Budget is coming in just two weeks, on October 28. The Chancellor is under mounting pressure from gilt and bond markets as the cost of the US action in the Middle East starts to impact the UK’s cost of borrowing, reducing vital headroom.
An HM Treasury spokesperson said: “Anyone whose only income is the full new or basic State Pension without any increments will not pay income tax and we are committed to that over this Parliament.
“By keeping the Triple Lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest Personal Allowance in the G7.”
State Pensioners and Andy Burnham’s £8,058 ‘Boost’: Two Major Rules Explained
State pensioners are facing an important debate about their retirement income and the cost of care after Andy Burnham unveiled plans to reform the state pension system and establish a new National Care Service. The proposals promise greater security for older people, including continued annual pension increases and the prospect of personal care without charges.
However, the headline figure of £8,058 needs to be treated carefully. The government’s published announcement does not describe £8,058 as a direct cash payment being handed to every pensioner. Instead, the central policy changes concern the state pension’s future annual increases and a proposed system of publicly funded personal care. <Cite refs={[“turn942950search1″,”turn942950search0”]}/>
For older people trying to plan their finances, the distinction is significant. A higher pension payment increases money received directly, whereas free personal care could reduce the amount someone has to spend on assistance with everyday activities. The value of any support would depend on individual circumstances and the final details of the new system.
Here are the two main changes, why they matter and what pensioners need to understand before assuming they will receive a specific financial boost.
1. The State Pension Will Continue to Rise Under an Adjusted Triple Lock
The first major rule concerns the triple lock, the mechanism used to increase the UK State Pension each year.
Under the current system, the pension rises by whichever is highest of three measures: average earnings growth, inflation as measured by the Consumer Prices Index, or a minimum increase of 2.5%. The mechanism is intended to protect pensioners against rising prices while allowing them to share in improvements in earnings.
Burnham’s government has committed to maintaining the existing triple lock throughout the current Parliament. From April 2030, however, it proposes an adjusted formula designed to keep the State Pension rising while making its long-term cost more sustainable. <Cite refs={[“turn942950search0″,”turn942950search1”]}/>
Under the proposed adjustment, the pension would continue to rise by at least inflation or 2.5%, with an additional link to average earnings intended to maintain its value relative to wages over time.
The government argues that this would preserve protection against inflation without allowing the State Pension to grow indefinitely faster than earnings. Its stated intention is that pensioners should continue to benefit as the economy grows while the system remains affordable for future generations.
For pensioners, the immediate point is that the proposed change is not an announcement of a sudden cut to the weekly pension. The government says existing pensioners will continue to receive annual increases and that the pension will not fall in cash terms.
Nevertheless, the precise value of future payments will depend on inflation, wage growth and the operation of the adjusted formula. Pensioners should therefore be cautious about claims that a specific sum is guaranteed for everyone.
The policy also creates a wider debate about fairness between generations. Supporters of the adjustment argue that a sustainable pension system is essential for younger workers who will eventually retire. Critics may worry that changing the formula could reduce pension increases compared with what would have happened under the existing triple lock.
Those competing concerns are central to the discussion about how Britain should fund retirement security over the coming decades.