Andy Burnham has pledged that state pensioners could be £537 better off thanks to a proposed rule change by HMRC and a Labour government, should he become Prime Minister. This announcement follows an analysis by the Centre for Policy Studies (CPS) examining Chancellor Rachel Reeves' recent decision to protect state pensioners from paying tax on their Department for Work and Pensions (DWP) payments.
Chancellor Reeves confirmed before Christmas that state pensioners would be exempt from paying small amounts of tax through a simplified assessment process. Under the Triple Lock system—which guarantees pension increases in line with inflation, earnings growth, or 2.5%—pensioners can expect to be at least £306 better off in real terms by 2030-31 compared to 2025-26, according to Burnham’s commitments.
The CPS highlights that if state pensioners relying solely on their state pension are exempt from paying income tax even when their payments exceed the personal allowance threshold, their financial wellbeing could improve by as much as £537.
READ MORE: Nine Million Pensioners to Receive £200 Bonus Under Andy Burnham’s Premiership
READ MORE: Andy Burnham Pledges £12,570 State Pension for Post-1951 Born Pensioners if Elected PM
In a recent interview with financial expert Martin Lewis, Reeves stated, “If you just have a state pension, we are not going to make you fill in a tax return of any type.” When asked whether 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.”
However, some voices have expressed concerns about this policy. Steve Webb, a partner at the pensions consultancy LCP and a former Liberal Democrat and Conservative pensions minister, warned that exempting some pensioners from income tax could be “unfair and unworkable.” Webb pointed out that millions of pensioners already receiving pensions above the tax threshold have not been given similar protections, raising the risk that those on the new system would be treated more favorably.
He also cautioned that pensioners with modest private pensions might be disadvantaged compared to those without private pensions under the new rules. Furthermore, Webb noted a potential inequity, saying, “A pensioner just above the tax threshold will pay no tax whilst an employee on exactly the same income will pay both tax and National Insurance Contributions, which seems unfair.”