Image source, Getty Images
- author, Sam Francis
- role, Political reporter
-
The Conservative Party has promised to increase tax-free pension benefits through the “triple lock plus” system if it wins the general election.
Under the plan, personal allowances for pensioners would increase by at least 2.5% or in line with earnings or inflation, whichever is higher.
Chancellor Rishi Sunak said the scheme “shows we are on pensioners’ side” and the Conservatives claim it could save pensioners £275 by 2030.
Labour said the Government’s plans were “not credible”.
At the moment, state pensions are already rising according to average earnings, wages or 2.5% – whichever is higher.
This means state pensions rose by 8.5% in April.
Both the Conservatives and Labour are committed to maintaining this policy, which is designed to ensure pensions keep up with price and wage rises.
However, the taxable income limit has now been frozen from 2021. Money received in pension form is also subject to income tax.
According to the independent financial watchdog, the Office for Budget Responsibility (OBR), state pensions are expected to exceed the tax-free personal allowance by 2027.
The Conservatives say this would mean millions of pensioners would have to pay income tax.
Age UK and Independent Age both said they have seen an increase in calls to their helplines in recent weeks from pensioners confused about the issue.
Under the new system, state pensions will always be below the tax-free limit.
The Conservatives claim the plan would cost £2.4 billion a year by 2029-30, but this would be paid for by a previously announced strategy to raise £6 billion a year through improved tax collection and a crackdown on tax evasion and fraud.
Similar policies have existed in the past but were scrapped by former Conservative Chancellor George Osborne.
Paul Johnson, from the public spending think tank IFS, told BBC Radio 4’s Today programme the costs of the policy would be “not a huge amount of money but these promises are starting to add up”.
“This shows a priority, and the priority is to exempt hundreds of thousands of pensioners from income tax.”
“I strongly believe that people who have worked hard all their lives should have peace of mind and security when they retire,” Sunak said.
“Thanks to the Conservative triple lock, pensions will be increased by £900 this year and next year there will be a tax cut of around £100.”
“This bold action shows we stand on the side of pensioners – otherwise Labour will put all full state pensioners under income tax for the first time in history.”
Shadow business secretary Jonathan Reynolds did not say whether Labour would rule out similar measures, but said he did not think the Conservative plans were “credible”.
He said the Sunak government had frozen the income tax floor and the proposals were “inconsistent with the work of this government over the past few years”.
Work and Pensions Secretary Mel Stride defended freezing the standards at an “extremely difficult time”, citing coronavirus and rising inflation.
“Since then, we have been lowering taxes,” he added.
Sarah Olney, the Liberal Democrat Treasury spokeswoman, said: “The Conservatives have saddled pensioners with unfair tax increases for years and broken their promises on the triple lock.”
“After this record of failure, people will not be fooled by yet another empty promise from Rishi Sunak.”
