John Healey Introduces Pension Tax Allowance in 2026 Budget

Chancellor John Healey announced a new Pension Tax Allowance in the 2026 Autumn Budget to protect low-income pensioners from income tax. Because the full new State Pension is rising by 3.9% to £13,036.40 in April 2027—surpassing the frozen personal allowance of £12,570—the new measure ensures those whose sole income is the state pension remain tax-free. The allowance provides an additional £94 of tax-free income, which tapers off at a rate of £1 for every £3 earned above £13,037 until it disappears at £13,319.

Beyond pensions, Healey increased the National Living Wage and National Minimum Wage by 3.9%, raising the hourly rate for those over 21 to £13.20. He also abolished the earnings cliff-edge for carer's allowance, replacing it with a digital taper system, and suspended tariffs on over 100 supermarket products to lower food prices. He maintained the maximum tax-free private pension lump sum at £268,275, rejecting proposals to lower it.

Prime Minister Andy Burnham announced that the government will adjust the triple lock mechanism starting in April 2030. The proposed overhaul will replace the current system with a double lock based on the higher of inflation or 2.5%, removing the link to average earnings to fund a new National Care Service in England. Critics of the new tax allowance warn it creates a two-tier system that penalizes prudent savers and introduces a high effective tax rate for those in the taper bracket.