Pensioners would be protected from paying income tax on the state pension under the Conservatives’ “Triple Lock Plus” policy.
This would bring the personal allowance – the level at which tax starts being payable – to just above the state pension and would rise alongside it.
For non-pensioners, the tax threshold, which has been frozen since 2021, would stay the same.
‘Quadruple Lock’
The number of pensioners liable for tax has doubled since 2010, rising to more than nine million.
When the full state pension rose in April this year to £11,502, it hit 92pc of the £12,570 personal tax threshold. This meant pensioners only needed to earn a small amount extra before becoming liable for income tax.
Around 80pc of pensioners earn money from a private or workplace pension, in addition to what they receive from the Government.
Currently, the state pension rises by the highest of wages, earnings or 2.5pc, known as the “Triple Lock”. Under the Conservatives’ plans, retirees’ personal tax-free allowance will rise in line with the state pension, like a “Quadruple Lock”.
This is to prevent pensioners paying income tax on their state pension, something that has become more of a worry as a result of frozen tax thresholds.
Concerns were raised earlier this year by charities including Age UK and Independent Age about more pensioners being pushed above the tax-free threshold by a rising state pension.
What would this mean for me?
Annual payouts from state and private pensions are taxed, as well as other income streams such as rental payments from second homes or payments for consultancy work.
The policy will increase the amount that some pensioners receive every year by reducing their tax liabilities.
The personal tax-free allowance was frozen at the Budget in March 2021 and will not rise until 2028, when the state pension is predicted to be £12,893.
By then, under the Tory plans, the personal allowance for pensioners would be £13,710.
A pensioner receiving £31,300 annually, which is the amount required for a “moderate” retirement, according to the Pensions and Lifetime Savings Association, would save £228 in tax per year.
The party said that the policy would mean a tax cut of around £100 for eight million pensioners if introduced, rising to an average of £275 a year by the end of the next Parliament.
Pensioners who fall into the additional rate band, earning more than £125,140 a year, could end up worse off under this policy. This is because additional rate payers do not benefit from the personal allowance.
The personal tax-free allowance goes down by £1 for every £2 earned over £100,000.
In 2012, some 425,000 people aged 65 and over were paying either the higher rate or additional rates of income tax, but that soared to 727,000 in 2022.
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