Triple Lock Plus: Rishi Sunak's plan to adjust pensioner tax allowances

The triple lock plus is a new policy that has been announced by the Conservatives
-Credit: (Image: Getty Images/iStockphoto)

Prime Minister Rishi Sunak has unveiled a new proposal dubbed "Triple Lock Plus", but what does that mean and how would it affect you?

The idea behind this policy is to transpose the triple lock rules onto the personal allowance for pensioners. This is aimed at preventing those in retirement from paying more of their income in taxes.

The Conservatives claimed that implementing this plan would come with an annual price tag of around £2.4bn by 2030, when it was announced. According to the Tory party, by next year this policy could lead to tax reductions of about £100 for eight million pensioners, which could surge to nearly £300 annually by the end of their parliamentarian tenure, reports the Mirror.

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However, Labour labelled the plan as a "desperate move" arguing that the Tories' intention to do away with National Insurance could lead to cuts in pensions. Jonathan Ashworth, the Shadow Cabinet Office minister, asked: "Why would anyone believe the Tories and Rishi Sunak on tax after they left the country with the highest tax burden in 70 years?

"This is just another desperate move from a chaotic Tory party torching any remaining façade of its claims to economic credibility. Not only have they promised to spend tens of billions of pounds since this campaign began, they also have a completely unfunded £46billion policy to scrap national insurance that threatens the very basis of the state pension."

What is the Pension Triple Lock?

The triple lock, a policy introduced by the Conservative-Liberal Democrat coalition Government in 2010, ensures that the state pension increases every April. The rise is determined by whichever is the highest of three factors: inflation (based on the previous September's Consumer Prices Index inflation rate), wage growth (average increase between May and July), or 2.5%.

In April 2023, the state pension saw a record increase of 10.1%, which was in line with the inflation measure from the previous September. This year, the state pension increased by 8.5%, reflecting the wage growth recorded between May and July last year.

As of April, the new full, flat-rate state pension (applicable to those who reached state pension age after April 2016) went up from £203.85 to £221.20 per week equating to £11,500 annually. The old basic state pension, paid to those who reached state pension age before April 2016, rose from £156.20 a week to £169.50 a week, an annual increase of over £600, bringing the total to £8,814.

What is the personal tax allowance?

The personal allowance refers to the amount of income you can earn each year without having to pay tax on it. The current personal allowance threshold stands at £12,570 and is set to remain frozen at this rate until April 2028.

If you earn less than the personal allowance, you won't have to pay any income tax at all. Under the current personal allowance structure, individuals can earn up to £12,570 tax-free and any income exceeding that threshold is taxable.

Britain's Prime Minister and Conservative Party leader Rishi Sunak at a community breakfast, in Northallerton, North Yorkshire, northeastern England, on May 25, 2024, during a party campaign event in the build-up to the UK general election on July 4.
Britain's Prime Minister and conservative party leader Rishi Sunak -Credit:OLI SCARFF/POOL/AFP via Getty Images)

For instance, if you make £50,270 - the maximum earning under the 20% tax bracket - you will pay a 20% tax on £37,500 of it, while the initial £12,570 remains untaxed. Pension income is also included in the personal allowance calculation.

Therefore, if your annual pension earnings exceed £12,570, any amount over this limit would be subject to tax. To illustrate, if your overall pension income totals £14,000 annually, then you would owe 20% tax on the additional £1,430.

How could the Triple Lock Plus affect me?

Dubbed as the "triple lock plus", under this proposed policy by the Tories, the personal allowance of pensioners would increase according to either average earnings, inflation or 2.5% - whichever yields the greatest result - from next April. This mirrors the rules concerning annual state pension increases.

Moreover, this policy assures by law that pensioners' personal allowances will always surpass the new state pension level. This will raise the pensioner personal allowance to £13,040 next year as per Tory's projection, and it would then climb to £13,370 the following year.

Once the personal allowance freezes for everyone else come 2028, the estimated state pension should sit at £12,893 annually. Under the Tory's plan, pensioners' personal allowance would increase to £13,710 by then.

According to the Pensions and Lifetime Savings Association, a pensioner needing £31,300 annually for a "moderate" retirement could save about £228 in tax each year. By 2028/29, the pensioner personal allowance is expected to reach £14,060, rising to £14,450 the following year, compared to the standard personal allowance of £12,820 and £13,080.

Had this policy been in effect during this tax year when state pensions increased by 8.5%, pensioners would have seen their personal allowance jump to £13,638. However, those in the additional rate tax band, with incomes over £125,140, might find themselves at a disadvantage under this policy since they don't get the benefit of the personal allowance, which reduces by £1 for every £2 earned above £100,000.

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