As the UK government prepares for Wednesday’s budget, reports indicate that Chancellor John Healey intends to implement a policy designed to protect low-income pensioners from income tax. The core of the issue stems from the annual increase in state pension payments, which threatens to push retirees above the current personal allowance threshold, effectively making a portion of their pension taxable.

While the full mechanics of the policy remain under wraps until the official budget announcement, the proposal suggests a specific personal allowance adjustment for those on the new state pension—which applies to those who retired after April 6, 2016—and potentially the basic state pension for older retirees. The Guardian reports that the government is seeking a way to ensure that the state pension does not become a source of tax revenue for HMRC at the expense of the lowest-income households. The policy is framed as a protective measure to maintain the real-term value of retirement income against the backdrop of fiscal drag, where static tax thresholds capture more income as payments rise.