Because the income tax thresholds will remain frozen as planned until 2031, this will push recipients of the full State Pension above the Personal Allowance of £12,570 making them liable to income tax on the difference of up to £467.

To combat this and protect state pensioners from having to pay income tax on the excess, a new Pension Tax Allowance (PTA) will be available from 6 April 2027. Individuals of state pensionable age with income up to the value of the State Pension will receive a credit calculated by applying the basic rate of income tax (20%) to the difference between the full State Pension and the Personal Allowance. The maximum PTA for the 2027-28 tax year will be £94 (20% of £467).

For those with a small amount of additional taxable income above the value of the full new State Pension, the allowance will be gradually withdrawn at a rate of £1 for every £3 of income above this level. For example if you receive the full State Pension of £13,037 and a private pension of £150, the PTA will be reduced by £50 from £94 to £44.

Once your taxable income reaches £13,319 the PTA will be fully withdrawn by the taper and income tax will be payable on all of your taxable income above £12,570.

The PTA is available to individuals of state pensionable age, subject to the limits above, and is based on total income not just the State Pension. It will be automatically applied to your tax calculation, you will not need to register to receive it.