Budget 2026: how will changes to income tax affect low-income pensioners?

If you’re a pensioner on a low income, there’s some welcome news in the autumn budget that could make a difference to your finances.

The chancellor, John Healey, has announced an increase in the state pension, alongside a measure designed to protect pensioners who rely solely on the state pension from having to pay income tax.

So, what does this mean for you?

Your state pension is going up

From April, the full, flat-rate state pension will increase by 3.9%, bringing it to £13,036.40 a year.

For many pensioners, every extra pound can help with the rising cost of everyday essentials, from food and heating to household bills. Healey says the move would protect nearly one million pensioners who are dependent on the state pension alone.

An increase in your state pension could therefore provide some welcome additional income.

Will you have to pay tax on your pension?

But, there’s a complication. The personal tax allowance - the amount you can receive each year before paying income tax - has been frozen at £12,570 since 2021.

With the state pension rising to £13,036.40 a year, the full new state pension would exceed this allowance by £466.40.

Under the usual rules, this could mean that you owe income tax on the amount above the threshold.

Help if the state pension is your only income

To address this issue, the government has announced you won’t have to pay income tax if your only income is the state pension.

This means that if you rely entirely on your state pension, you can benefit from the increase without having to worry about paying tax on it.

It should also save you the hassle of dealing with tax paperwork or administration simply because your pension has risen slightly above the personal allowance.

If you’re living on the state pension alone, the increase means more money coming in, while the tax measure is intended to ensure that you don’t face an unexpected tax bill just because your pension has gone up.

For pensioners on tight budgets, that extra reassurance could be just as important as the increase itself.