Healey Announces New Tax Allowance for Low-Income Pensioners

Source reports published 26 Oct 2026, 10:00 am – 7:47 pm AEST

Chancellor John Healey has announced a new personal allowance for low-income pensioners, aligning it with the full new state pension amount. This aims to shield those reliant solely on the state pension from income tax, addressing a growing gap between the pension and the standard tax allowance.

What happened

• In his first budget, Chancellor John Healey has pledged to shield low-income pensioners from income tax.
• The full new state pension, set to rise to £13,036.40 annually from April due to a 3.9% increase in wage growth, will be exempt for those deriving all their income from the state pension.
• This follows a previous commitment by the then-Chancellor, Rachel Reeves, to protect those solely reliant on the state pension.
• The government intends to achieve this through a new personal allowance specifically for low-income pensioners, mirroring the full state pension amount.
• However, experts, including former pensions minister Steve Webb, have cautioned that this approach could become ‘messy and increasingly expensive’ as the gap between the state pension and the tax threshold grows.
• Concerns exist that a complex tapering system might be required to manage the policy, potentially leading to a ‘cliff-edge’ problem where those with small private incomes lose the allowance entirely.
• The move reflects a shift from the previous Conservative approach, which advocated for deep cuts to welfare and green taxes.
• The Guardian reports that the scheme could become complicated, particularly for those receiving income from private or workplace pensions, which already exceed the standard allowance.
• The government’s allies argue this measure will simplify the administrative burden for pensioners.
• The plan is expected to be implemented in the 2027-28 tax year.

Original reporting

• BBC: John Healey's Budget to shield low-income pensioners from income tax
  2026-10-26T09:47:21.835000+00:00
• Guardian: Healey is expected to shield low-income pensioners from income tax – but how will it work?
  2026-10-26T00:00:00+00:00