Data casts doubt on Conservatives’ state pension pledge
Data from LCP has called into question the Conservative Party’s “triple lock plus” policy and its promise to pensioners that they will “never” be taxed on their state pension.
The Conservative Party’s manifesto introduced the so-called “triple lock plus”, which will raise the personal allowance for pensioners to keep their state pension income below the level at which they become liable to pay income tax.
On its website, the party states: “This means the personal allowance for pensioners will rise every year – ensuring they NEVER pay tax on their state pension.”
Speaking to Pensions Expert, Sir Steve Webb – former pensions minister and now a partner at LCP – highlighted that there were already millions of people in receipt of a state pension that paid some level of income tax on it.
Research by LCP, published today (21 June), indicates that approximately 2.5 million people already in receipt of a state pension “are over the existing income tax personal allowance purely on the basis of their state pension”.
Even if a “triple lock plus” policy was introduced, these people would likely still pay income tax on their state pension, LCP said.
This relates to benefits built up using the old basic state pension system and SERPS, or state earnings-related pension scheme.
Sir Steve said: “Even with the Conservatives’ ‘triple lock plus’ policy, 2.5 million pensioners will be paying tax on their state pension.
“People fixate on the new state pension and the standard rate, [which] is going to go up with the triple lock. At some point it will exceed the tax-free allowance and then a bit of your pension will become taxable.
“What that ignores is that most pensioners in Britain are not on the new state pension – they’re on the old state pension system. Under the old system, you’ve got a basic pension and a SERPS pension, which can be between zero or £200, it varies enormously.
“It’s sort of symbolic if the standard flat rate of the new state pension is above the tax allowance, but I don’t take the view that there is a crisis looming.
“The Conservatives have overseen a growth of over 3 million in the number of taxpaying pensioners, so it is a bit odd for them to now say ‘isn’t this disgusting’.”
The “triple lock plus” policy would lower the tax bill for many pensioners, LCP found, but for roughly 20% pensioners it would “not deliver the stated objective of ensuring that their state pension is completely free of income tax”.
With the Labour Party expected to win a majority at the 4 July election, the new government will still have to deal with the issue. However, Sir Steve highlighted that, to do so, it would “have to find a new revenue source” to balance the books.
The numbers
A person currently in receipt only of the full new state pension can expect to receive around £11,500. This is guaranteed to rise by at least 2.5% a year through the existing triple lock.
Meanwhile, the Conservative government froze the personal allowance – the earnings threshold beneath which no income tax is payable – at £12,570 until the end of the 2027-28 tax year. Labour has indicated that it will not change this.
This means that, within four years and potentially sooner, those in receipt of the new state pension may find a part of this income becomes taxable.
LCP’s figures, based on data from the Department for Work and Pensions, showed that the number of pensioners paying income tax grew from 4.9 million in 2010-11 to 8.5 million in in 2023-24.