Nearly 2.5m pensioners would still pay tax on state pension under triple lock plus

Nearly 2.5 million pensioners would still pay tax on their state pension after the implementation of a ‘triple lock plus’ policy, according to analysis by LCP.

The policy aims to prevent pensioners from ever paying tax on their state pension by increasing their personal allowance every year, with the Conservative Party’s website stating the triple lock plus would ensure that pensioners would “never pay tax on their state pension”.

As the standard rate of the new state pension, which is around £11,500, is currently below the standard personal allowance of £12,750 a year, triple lock plus would ensure that pensioners whose taxable income consisted of the new state pension alone, paid at the standard rate, would have no income tax liability on their state pension.

However, LCP claimed that the policy would not deliver on the stated objective, and almost 2.5 million pensioners would still be paying tax on their state pension.

This is primarily due to some pensioners not being on the standard rate of the new state pension and many being on the old state pension system, which can vary in income amounts.

LCP found that more than 2 million pensioners are on the old system and receive pensions that are in excess of the tax allowance, and would continue to do so if allowances and pensions rose by the same percentage.

Furthermore, around 300,000 pensioners on the new state pension are receiving pensions above the income tax allowance, with the majority of these being men.

LCP noted that the triple lock plus policy would result in a lower tax bill for millions of pensioners than a continued policy of freezing personal allowances for pensions.

However, the firm stated that it would not deliver the stated objective of never paying tax on the state pension for around one in five pensioners.

“With record numbers of pensioners now paying income tax, there is an understandable focus on pensions and tax,” commented LCP partner, Steve Webb.

“But 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."

A Conservative Party spokesperson 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 per cent - 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."

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