The Conservative Party has confirmed its intention to link the state pension triple lock to the tax-free allowance in its election manifesto.
However, other notable Conservative pension policies – in particular the lifetime provider or ‘pot for life’ concept – were missing from the 80-page document published today (11 June).
The manifesto pledged to “cut tax for pensioners” through the ‘triple lock plus’ - although the policy itself would avoid a tax increase rather than reduce the current amount of tax that pensioners pay.
This policy – trailed late last month after the election was called – guarantees that the annual total of the state pension and the tax-free allowance for pensioners “always rise with the highest of inflation, earnings or 2.5%”.
This would mean that state pension payments do not become subject to income tax.
David Lane, chief executive of TPT Retirement Solutions, said the policy “could prove popular with some older voters”. He cited TPT research that found more than half of working people were worried about the cost of retirement.
“Many people are struggling to save enough for retirement and will rely on the state pension,” Lane said. “If this policy isn’t introduced and income tax thresholds remain frozen, pensioners are expected to start paying income tax on their state pension in 2027.
“Anyone who depends on the state pension for their retirement may find it difficult to cope if they have to start paying this tax.”
National insurance
Elsewhere in the manifesto, the Conservative Party said it would not make any further changes to the system of tax relief on pensions for five years and committed to additional cuts to National Insurance, particularly for self-employed people.
Simon Kew, head of market engagement at Broadstone, said: “The proposed National Insurance cut for the self-employed will support their financial health and it is positive that this will not impact their state pension, but we would have liked to see further detail of a plan to boost adequate pension saving among this group.”
Mike Ambery, retirement savings director at Standard Life, said the proposed cut – which would be the third reduction since 2023 if enacted – would offer “some relief to squeezed monthly budgets”.
He said: “Notionally National Insurance is intended to fund the state pension, so any cut adds to the long-running question over how it is funded. The reality is more complex and so long as the government of the day is committed to the state pension, the money will be found.
“Both the Conservatives and Labour appear likely to keep the current freeze on tax thresholds and the personal allowance for workers in place. Therefore, many will find themselves paying more tax as wages rise, lessening any National Insurance cut glow for individuals while offering public finances some protection.”
What’s not in the manifesto
Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association, said: “We are yet to see any of the political parties commit to addressing the chronic under-saving problem that will lead to more than 50% of savers falling short of the retirement income targets set by the 2005 independent Pensions Commission. We urgently need a roadmap to gradually increase pension contribution levels from 8% to 12% over the next decade or else many people working today will miss out on a better pension in retirement.”
Tim Middleton, director of policy and external affairs at the Pensions Management Institute, expressed frustration at the lack of pension policies for people still in work.
“It would have been encouraging, for example, to have included further reforms to auto-enrolment,” he said. “It is also a little surprising that there was no mention of the lifetime provider.”
Aegon’s Cameron added: “Unfortunately, a number of important future pensions developments don’t get a mention, including when enhancements to automatic enrolment might be advanced. These would open up automatic enrolment into workplace pensions from age 18 rather than 22 and would gradually increase the minimum contributions to 8% of earnings from the first £1, rather than only on earnings above £6,240.”
According to the latest YouGov data, 19% of voters would back the Conservative Party at the general election. This compares to 41% of voters who plan to back Labour.
The Labour Party’s manifesto is expected to be published on Thursday 13 June.
Further reading
Lib Dems to require climate reporting from pension funds (10 June 2024)
Voters want pension reform, research shows (3 June 2024)
What do NI cuts mean for the state pension? (14 March 2024)
