In pension news in the Budget, the Chancellor confirmed the new Pension Tax Allowance which will shield low-income pensioners from paying income tax.
The Chancellor said the allowance will benefit around 1m pensioners by the end of the current Parliament.
The allowance will take effect from the tax year beginning 6 April 2027, when the full annual value of the new State Pension will increase to £13,036.40, higher than the current personal income tax allowance of £12,570.
Anyone whose total income is no more than the full annual value of the new State Pension will receive the allowance.
The Government said it was introducing the allowance, “to reduce the administrative burden for some pensioners who would otherwise have a small amount of tax to pay.”
Who will benefit? The government said In 2027-28, the new Allowance will mean that around 290,000 pensioners will not pay any tax, with around 500,000 in total benefitting from a tax reduction.
Pensioners whose income is higher than the new State Pension could also get some of the Pension Tax Allowance. Pensioners with total income below the Personal Allowance of £12,570 will not be liable for any tax.
Pensioners with a total income between £12,570 and £13,037, will receive the full Pension Tax Allowance, which the government said was worth up to £94.
Pensioners with total income between £13,037 and £13,319, will receive some Pension Tax Allowance and pay less income tax than they otherwise would. Pensioners with total income of £13,319 or more, will not receive any Pension Tax Allowance.
For the tax years 2028-29 and 2029-30, the government said the value of the Pension Tax Allowance will be uprated in line with the full annual value of the new State Pension.
The Chancellor also confirmed the previously-announced adjustment to the Triple Lock in the Budget. He said: "This will save £15bn a year by the end of the 2030s, £50bn by 2050."
Olly Cheng, Financial Planning divisional lead at Rathbones, said: “Pensioners relying solely on the State Pension have precious little financial wiggle room, so protecting them from being dragged into the income tax net is welcome.
“But there is a bigger lesson here. The recent decision to adjust the Triple Lock from April 2030 is a timely reminder that the rules governing the State Pension are not set in stone.
“The Government says the new approach will continue to protect pensioners against inflation and maintain its value relative to earnings over time, but the mechanism itself is changing. For younger generations in particular, the message is clear: don’t bank on the State Pension.”
Kate Smith, head of pensions at Aegon, said: "Savers need confidence that the pension rules they're planning around today will still be there tomorrow, so today's low-key Budget for pension savers is good news.
"People saving for retirement need confidence that they can plan for the future without constantly second-guessing the rules. Long-term Financial Planning works best when people can make decisions with certainty rather than reacting to recurring speculation and changes to the pension tax rules.”