State pensioners handed £8,058 boost by Andy Burnham with 2 new rules

State pensioners are being given two new rules by Andy Burnham and his new Chancellor, John Healey, which will hand them a boost worth £8,000 and a tax exemption which could be worth at least £58 a year on top.

This week, it was confirmed that Cash ISA limits will be cut to £12,000, down from the current £20,000 limit, as of April 2027, in a move first announced by former Chancellor Rachel Reeves but now to be carried out under Andy Burnham and John Healey’s stewardship. But, the pair will also retain Reeves’ rule for over-65s, meaning all state pensioners, and a few over-65s who are just about to hit state pension age, will be able to keep their full Cash ISA allowance of £20,000, an £8,000 boost to Cash ISA deposit limits compared to under-65s.

And another rule first announced by Rachel Reeves will also be implemented under Andy Burnham: the tax exemption for state pensioners who rely solely on DWP state pension payments.

Before her departure as Chancellor, Rachel Reeves announced via the Martin Lewis Money Show Live on ITV1 that state pensioners who do not have any other income other than the state pension would not be made to pay income tax.

Initially, she had reported in her Budget speech to Parliament that pensioners would not be made to pay ‘small amounts of tax via self-assessment’, but the next day she clarified that this actually meant pensioners would pay no tax at all, much to Martin Lewis’ surprise, as long as they had no other income.

Since then, new PM Andy Burnham and his new Chancellor John Healey have, via HM Treasury, confirmed to the i Paper that they are committed to this policy and will ensure state pensioners are not dragged into paying tax.

Next April is when the issue would have become a problem, as the triple lock increase – itself a policy now being axed by Mr Burnham, but not until 2030 – would increase post-2016 state pension payments to beyond the frozen £12,570 threshold, pushing state pensioners who had never been paying tax before into paying tax on their DWP benefit payments for the first time.

Crucially, state pensioners have always been liable to pay tax, but those with no other income have never collected enough from the state pension to exceed the threshold. But this will change in April 2027.

In April 2027, even the minimum 2.5% increase would push pension payments to more than an estimated £12,861 for a new, post-2016 state pensioner with a full National Insurance record.

If state pensioners were to pay tax on this at 20%, then approximately £291 would have been taxable, which would result in a bill of £58.20 for a 20% taxpayer. And if the triple lock rose by a larger amount, as it is likely to do, the bill would be higher still, possibly in three figures.

State pensioners who have no other income, such as a private pension, earnings, savings interest, or rental income, will not be required to pay this bill and will be exempt.

Some older state pensioners, of course, are already paying tax. Now-defunct schemes such as the Second State Pension (SERPs), already boost basic state pensioners’ income to beyond the tax threshold today. HM Treasury confirmed to the Express earlier this year that older state pensioners’ ‘incremental payments’ such as SERPs would not be exempted from tax.

Andy Burnham’s Chancellor John Healey has not yet revealed the full extent of his spending plans – or their costings – but the Budget is coming in just two weeks, on October 28. The Chancellor is under mounting pressure from gilt and bond markets as the cost of the US action in the Middle East starts to impact the UK’s cost of borrowing, reducing vital headroom.

An HM Treasury spokesperson said: “Anyone whose only income is the full new or basic State Pension without any increments will not pay income tax and we are committed to that over this Parliament.

“By keeping the Triple Lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest Personal Allowance in the G7.”