Overview
- Fresh modelling by LCP finds roughly one in 18 pensioners will qualify for the promised exemption, equal to about 700,000 of 13.2 million people on the state pension.
- The full new state pension is projected to overtake the frozen £12,570 personal allowance in April 2027, which would otherwise produce small income tax bills for retirees with no other income.
- Eligibility is restricted to those whose only income is the state pension, with many excluded because they have even small private income, a protected payment on top of the new pension, live overseas, or receive too little pension to cross the threshold.
- The design creates a cliff edge where £1 of other taxable income disqualifies someone and triggers tax on their whole pension, with typical bills estimated at about £88 in 2027/28, £153 in 2028/29, and £220 in 2029/30.
- No one on the pre-2016 system is expected to qualify, drawing fairness criticisms from LCP’s Steve Webb, while the Treasury reiterates its pledge for this Parliament and analysts weigh costlier alternatives such as raising thresholds or writing off small bills.