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Rachel Reeves has issued a fresh update on a looming tax change affecting millions of pensioners as the value of the state pension continues to rise. The Chancellor confirmed the Government is working on plans to ensure pensioners whose only income is the state pension will not be forced to pay income tax, despite increases driven by the triple lock policy.

Her comments come after warnings that more pensioners could be pushed into paying tax from April as the state pension rises again. Under the Government's current policy, the state pension increases each year under the State Pension Triple Lock, which guarantees payments rise by whichever is highest between 2.5%, inflation or average wage growth.

From April 2026, the full new state pension will increase by 4.8%, rising to £241.30 per week, equivalent to £12,547.60 a year. That figure sits just £20 below the current personal allowance threshold of £12,570.

If the triple lock continues to increase the pension at a similar rate, the full new state pension is expected to exceed the tax-free allowance from April 2027, meaning pensioners could technically become liable for income tax.

However, Reeves told MPs the Government intends to prevent this from happening for people whose only income is the state pension.

Speaking to the Treasury Committee, she said the increase means the pension will rise by around £575 a year from April and could be around £2,000 higher by the end of the current Parliament.

She blamed the situation on earlier decisions to freeze income tax thresholds, which means rising pension payments are increasingly likely to cross the tax-free limit.

She told the MPs: "From the beginning of April, the new state pension is going to go up by £575 a year, and over the course of this Parliament, it is forecast that the new state pension will be £2,000 a year higher by the end of the forecast, because of this Government's commitment to the triple lock.

"The previous Government froze the income tax thresholds. It is in those years-for those freezes-that the new state pension will come into income tax if nothing is done, but I have committed to do something.

"We are working on how that will work at the moment, but we have been clear that, if your only income is from the new state pension, you will not be subject to income tax during the course of this Parliament. We will set out details later this year on how that will happen."

The Chancellor said the Government is developing a policy to ensure that pensioners who rely solely on the state pension do not have to pay small amounts of tax.

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Officials previously confirmed that legislation will likely be required to introduce the change, which could appear in the Finance Bill expected later in 2026. The plan is currently scheduled to take effect from the 2027/2028 tax year.

The proposed policy would prevent people whose only income is the basic or new state pension, without any additional payments or private income, from being unnecessarily drawn into the tax system.

However, MPs also highlighted scenarios where some pensioners could still face tax bills.

Meg Hillier pointed out that pensioners who receive additional income, such as interest from savings or dividends, may still become liable for income tax.

Under current rules, savers can earn up to £5,000 a year in interest tax-free through the starter rate for savings, though this allowance gradually reduces as income rises above the personal allowance threshold.

Additional allowances allow basic-rate taxpayers to earn up to £1,000 in savings interest tax-free, while higher-rate taxpayers can earn £500 before paying tax.

Reeves acknowledged that many pensioners with other forms of income are already taxed, but insisted the government's focus is on protecting those who rely solely on the state pension.

She said further details on how the exemption will work are expected later this year as the government finalises the legislation.