It is based on the observation that the standard new state pension (currently around £11,500 pa) is only slightly below the tax allowance (£12,570) and that within a few years the new state pension could be above the tax threshold. In this scenario people would be paying tax who had no other income than their state pension. The policy solution to this is to ‘triple lock’ the tax allowance for pensioners as well, making sure that the pensioner tax allowance is always above the standard new state pension rate.
We have now undertaken some research into this policy, and in particular the statement on the Conservative manifesto that (capitals as per the website):
“So if you vote to stick with the plan, Rishi Sunak and the Conservatives will not only guarantee the Triple Lock — we’ll introduce the Triple Lock Plus. This means the personal allowance for pensioners will rise every year — ensuring they NEVER pay tax on their state pension”.
We find that in fact this policy would not deliver the stated objective. Rather, we estimate that around 2.5m pensioners would still be paying tax on their state pension even if this policy were to be implemented. This is mainly because most pensioners are not on the standard rate of the new state pension but are actually on the old state pension system, where amounts can vary from a few pounds per week to several hundred pounds per week. Over 2 million pensioners on the old system – roughly evenly split between men and women – get pensions now which are in excess of the tax allowance and would continue to do so if allowances and pensions rose by the same percentage.
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