State pensioners warned they'll still pay tax under new 'triple lock' rules

Anyone who receives a state pension has been warned that they could still pay tax on it under a "triple lock plus" policy which is being proposed by the Conservatives. The existing triple lock commitment guarantees that the state pension rises each April by the highest out of inflation using the previous September inflation figure, wages based on average growth between May and July, or 2.5 per cent depending on which is highest.

And the Conservative Party has pledged to bring in triple lock plus which would see pensioners' tax-free personal allowance rise each year in line with the state pension. But research from consultants Lane Clark & Peacock (LCP) has shown that some people already pay tax on their state pension and would continue to do so.

This is due to differences in how much money people receive, The Mirror reports. The full new state pension is worth £11,541.90 a year, which is currently below the standard personal allowance of £12,750 and the amount for which most people would start to pay tax.

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People will claimed the new state pension if they reached retirement age on or after April 6, 2016 which this means the majority of current pensioners are under the old state pension system. LPC said some people on the old state pension also receive additional state pension money, due to transitional measures that were introduced when the system switched over.

LCP analysis of Department for Work and Pensions ( DWP ) figures show around 2.5million people across Britain have state pensions above the income tax threshold. This is made up of just over two million older pensioners on the old state pension system and around a third of a million pensioners on the new state pension.

While a triple lock plus policy would deliver a lower tax bill for millions of pensioners, one in five pensioners would still be at risk of paying tax, LCP has said. Sir Steve Webb, a former Lib Dem pensions minister who is now a partner at LCP, said: "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 spokesman added: "Under the triple lock plus, the tax-free allowance for pensioners will rise in line with the fastest of prices, earnings or 2.5% – just like the state pension." They went on to say that "millions of pensioners will pay more tax under Labour's retirement tax."