Million pensioners saved from tax grab in Budget 2026

By the Editorial Team · Monday, October 26, 2026

Chancellor John Healey’s upcoming budget will raise the state pension by £489 and increase the personal tax allowance for pensioners to £13,036, preventing nearly one million low-income pensioners from paying income tax on their pension rise. The budget also maintains the current tax-free pension lump sum threshold and signals a shift away from the pension triple lock by 2030, while addressing wider fiscal challenges including rising government debt and higher tax burdens for middle-income earners.

Chancellor John Healey is set to unveil a budget on Wednesday that includes measures aimed at protecting nearly one million pensioners from paying income tax despite an increase in the state pension. The full state pension will rise by £489, reaching £13,036, a 3.9 percent increase. This rise, however, would have pushed many low-income pensioners above the current personal allowance threshold of £12,570, exposing them to income tax liabilities.

To address this, the government plans to raise the tax-free personal allowance for low-income pensioners to match the new pension amount of £13,036. This change is expected to cost taxpayers around £200 million annually by the end of the decade and will increase in line with state pension rises throughout the parliamentary term. Despite this adjustment, pensioners with higher overall incomes, including those receiving private pensions, will continue to pay income tax as usual.

In addition to this, Healey has reportedly decided not to reduce the maximum tax-free pension lump sum, which can be taken from age 55. While there was speculation that the tax-free limit might be lowered from £268,275 to £100,000, the Chancellor is expected to maintain the current threshold. This decision comes amid significant withdrawals from pension pots, which have nearly doubled since the Labour government took office, rising from £11.3 billion in 2023 to £22.1 billion in 2025-26. The surge has been attributed in part to concerns over potential tax changes, including proposals to levy inheritance tax on pensions starting in April.

The budget will also revisit plans announced by Andy Burnham, the Labour Party’s shadow minister for social care, to end the state pension triple lock in 2030. The triple lock guarantees an annual increase in the state pension by the higher of wage growth, inflation, or 2.5 percent, a mechanism in place since 2012 credited with significantly boosting pensioner income and reducing poverty. Under the proposed changes, the wage growth element would be dropped, and the pension would increase by the greater of 2.5 percent, inflation, or a measure aimed to maintain value relative to average earnings, though the exact figure remains pending confirmation.

While the measures targeting pensioners may be seen as supportive, the budget also faces broader fiscal challenges. Government debt stands close to £3 trillion, with interest servicing costing nearly £9 billion in August alone. The Office for Budget Responsibility is expected to highlight that taxes are set to rise to postwar highs, with over half a million more people projected to enter the higher 40 percent income tax bracket in 2026-27. This increase will affect a range of professionals, including senior police officers and nurses.

The budget is anticipated to include additional defence spending, reflecting Healey’s commitment to raising defence expenditure to 3.5 percent of GDP by 2035. Funds will also be allocated to government investment institutions such as the National Wealth Fund and the British Business Bank, supporting sectors including defence technology.

Overall, Healey’s forthcoming Budget appears to maintain a cautious, steady approach to public finances, balancing targeted support for pensioners and poorer households with the need to manage fiscal pressures and fund government priorities.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.