Chancellor John Healey’s first Budget was mostly about tax and the wider economy. But a handful of announcements will matter a lot to pensioners, carers and people on benefits.
The headline for older people is a new Pension Tax Allowance, designed so that pensioners living on the State Pension don’t start paying income tax when it rises above the tax-free limit next April. Here’s how it works, and what else the Budget means for your money.
The new Pension Tax Allowance
From April 2027, the full new State Pension rises by 3.9% to about £13,036 a year. That’s £466 above the £12,570 Personal Allowance, which has been frozen since 2021. Without any change, about a million pensioners would have started paying small amounts of income tax.
Healey said pensioners “with income up to the value of the full new state pension will not pay income tax in this Parliament.” Here’s how MoneySavingExpert explains the mechanism:
- It’s a separate allowance on top of the normal £12,570 Personal Allowance. It doesn’t change the Personal Allowance for anyone else.
- It’s based on your total income, not just the State Pension. A small private pension, earnings or savings interest all count.
- You don’t have to claim. HMRC will apply it automatically using information it already has.
- It’s worth up to about £94 a year in 2027/28.
| Your total yearly income (2027/28) | What happens |
|---|---|
| Under £12,570 | No income tax anyway |
| £12,570 to £13,037 | Full Pension Tax Allowance, so no income tax |
| £13,037 to £13,319 | Partial allowance, reduced by £1 for every £3 over £13,037 |
| £13,319 or more | No Pension Tax Allowance, normal tax rules |
MSE says about 500,000 pensioners will benefit, and around 290,000 of them will pay no income tax at all as a result.
Not everyone’s happy
Pension experts point out that the Personal Allowance stays frozen while the State Pension keeps rising. That means the gap, and the cost of this fix, will grow every year. Former pensions minister Steve Webb, now at LCP, called the approach “messy and increasingly expensive.” Aegon’s Kate Smith warned it may feel unfair to people who saved into workplace pensions and end up just over the line.
The triple lock is changing, but not until 2030
The government confirmed it intends to change the triple lock from April 2030 to help pay for a new National Care Service. Increases would be based on the higher of inflation or 2.5%, rather than the highest of earnings, inflation or 2.5%. There would be a separate mechanism meant to keep the State Pension broadly in line with earnings over time. Nothing changes before then, and April 2027’s 3.9% rise goes ahead as planned.
Carers: the cliff edge is going
The Budget confirmed that the Carer’s Allowance earnings “cliff edge” will be replaced by a taper. Instead of losing the whole £86.45 for earning a penny over £204 a week, carers will lose £1 for every £1 over the limit. It’s expected from 2030/31.
Help with energy bills
- A £100 payment this winter for about 20 million households in England in council tax bands A to D. It’s not means-tested.
- VAT relief on household electricity extended to July 2027, worth about £50 a year off the price cap.
- Gas standing charges scrapped from 2027 at the earliest. The cost moves into unit prices, so low gas users should save and heavy users may pay more.
What about benefits?
There was no big package of benefit cuts. The Chancellor said ministers will respond to ongoing reviews, including the review of PIP, before setting out detailed plans. So nothing changes to Universal Credit or PIP payments because of this Budget, at least for now. Benefits are still expected to rise by CPI inflation of 3.5% next April.
Other changes that may affect households:
- The National Minimum Wage and National Living Wage go up by 3.9%, helping about 2.3 million lower-paid workers.
- Self-employed dads and partners will get up to two weeks of parental pay at up to £194 a week. The start date is yet to be confirmed.
What to do now
For most people, nothing yet. The Pension Tax Allowance starts in April 2027 and is applied automatically. Just make sure HMRC has your correct address and pension details, and check your tax code when it arrives next spring.
Sources: MoneySavingExpert, Pension Tax Allowance, City AM, Financial Reporter and Stratford Observer.
Maria is a dedicated news writer covering the latest UK updates on DWP, PIP, State Pension Triple Lock, Child Benefit, Universal Credit, and driving licence regulations. She focuses on explaining government announcements, benefit eligibility, payment changes, pension increases, and new regulations in a clear and easy-to-understand way.