personal finance

State pension triple lock warning as millions 'will still pay tax' under new plan

One in five pensioners – an estimated 2.5 million – pay income tax on their state pension and will continue to do so regardless of who wins the election.

The Conservative manifesto includes a ‘triple lock plus’ proposal which is supposed to protect people on the state pension from paying income tax.

The standard full new state pension is worth £11,541.90 a year, which is currently below the standard personal allowance of £12,570 the point for when most people would start to pay tax.

However, a significant number of people – 2.5m – receive a state pension of more than £12,570 which means they are already paying tax.

The figures come from pension consultant LCP (Lane Clark & Peacock) shows that there is huge diversity in the amount of state pension people receive.

Partner at LCP and former Liberal-Democrat pensions minister in the coalition government, Sir Steve Webb, said: “Much of the discussion has assumed that pensioners typically receive a standard rate of pension such as the new flat rate of around £11,500 per year.

“The reality is that the amounts which pensioners receive vary hugely, from a few pounds a week to hundreds of pounds a week.

“We estimate that around 2.5 million pensioners, or more than one in five of all pensioners, have state pensions in excess of the income tax threshold.

“These pensioners would overwhelmingly continue to be taxpayers even if future policy linked the income tax allowance to increases in the headline rate of state pension.”

He said cuts to the real value of income tax allowances and big increases in the state pension have led to a rise in the number of over-65s paying income tax since 2010, which is likely to continue.

A Conservative Party spokesman said: ‘Under the triple lock plus, the tax-free allowance for pensioners will rise in line with the fastest of prices, earnings or 2.5 percent – just like the state pension.

‘Because Labour opposes it, it means that a pensioner whose sole income comes from the new state pension will be dragged into paying income tax for the first time in our country’s history.

“Millions of pensioners will pay more tax under Labour’s retirement tax – with the average pensioner paying around £1,000 more in tax in the next Parliament under Labour than under the Conservatives.”


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