New State Pension 'Triple Lock Plus' could see people working longer before reaching retirement age

If re-elected, the Conservatives have pledged to introduce a ‘Triple Lock Plus’ guarantee that the party said would prevent ‘millions’ of State Pensioners from paying tax in retirement. Their plan would ensure that the tax-free Personal Allowance rises each year in line with the State Pension uprating.

Under this Triple Lock, the New and Basic State Pensions increase each year by whichever is the highest of - average annual earnings growth from May to July, Consumer Price Index (CPI) inflation in the year to September or 2.5 per cent. This ‘Triple Lock Plus’ guarantee would mean that the Personal Allowance is always higher than the maximum rate of the New State Pension, which is now worth £11,502 annually.

This currently leaves just over £1,068 (£89 per month) in additional income before pensioners need to pay tax. At present, some 8.1m (64%) of the total 12.7m people over State Pension age currently pay tax in retirement, largely due to additional income from workplace or private pensions on top of their State Pension.

Retirement experts predict a further 900,000 people will exceed the Personal Allowance threshold of £12,570 over the current financial year, with another 2m expected before the freeze ends in 2028.

However, it’s important to be aware that older people whose sole income this year is the State Pension will not pay tax.

A recent survey of 2,000 people carried out by Opinium on behalf of Hargreaves Lansdown found that 54 per cent of those aged 55 and over would be more likely to vote for a party who pledged to keep the Triple Lock. For retired people it’s even higher at 61 per cent.

By contrast, over a quarter (26%) of the over-55s said they would be more likely to vote for a party who said they would not increase the State Pension age.

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown warns that a rise in the State Pension age sooner than expected may be likely in an effort to “contain costs”.

The ‘Triple Lock Plus’ will cost £2.4 billion a year by 2029/30 and will be funded by clamping down on tax dodgers.

Ms Morrissey said: “We are deep into General Election campaigning territory now and it’s clear the retiree vote will prove vital. We knew issues such as the Triple Lock would prove decisive.

“The dial has since been turned up a notch with the Conservative announcement of the Triple Lock Plus - a plan aimed at making sure the State Pension is not subject to income tax. It’s a pledge that will prove popular not just with those who would vote to keep the Triple Lock but also those concerned about the impact frozen tax thresholds are having on their income tax bill.

“However, in the push to keep the Triple Lock older voters face having to deal with the prospect of State Pension age having to rise to contain costs.”

The retirement expert continued: “It’s the unpleasant dilemma at the heart of the State Pension debate that isn’t talked about enough. We know the cost of the State Pension is enormous and is shouldered by a smaller working population.

“In the face of a burgeoning bill there’s every chance the government will pull one of its key cost-containing levers and hike the State Pension age. Such a move would prove highly unpopular with the retiree vote - almost 40 per cent of over 55s said such a pledge could make them vote elsewhere.”

Ms Morrissey added: “Triple Lock debate will continue to hog the headlines but is only one part of a complex jigsaw puzzle that needs looking at from all angles.

"Whoever wins the General Election must carry out a comprehensive view of State Pension including the Triple Lock to ensure it remains sustainable long-term and that retirees have certainty over what they get from the state and when.”