28 May 2024
If you are covering the Conservatives ‘Triple Lock Plus’ policy announcement, please see the following commentary from Kirsty Anderson, retirement specialist at Quilter:
It has taken an election for the Conservative party to address the perverse situation where many pensioners will soon find themselves having to pay back a proportion of their state pension.
The state pension is now £221.20 per week or £11,502.40 per year in the 2024/25 tax year, leaving just over £1,000 of the personal allowance. This will no doubt see a considerable number of pensioners who have additional retirement income dragged into paying tax. In fact, the last set of data from HMRC showed there with now 6.74 million taxpayers of state pension age for the 2021/22 tax year, a rise of 4.3% compared to the year before.
With this in mind both parties must act and while the Conservatives are dressing up their action as “triple lock plus” if Labour plan to maintain the triple lock they too will need to raise the personal allowance.
Our previous analysis found that pensioners could need to pay back a proportion of their state pension in income tax in just two years’ time. Simply from an administrative point of view this would prove difficult for HMRC so it seems unlikely if Labour were to get in, they would not be forced to act in some way.
Frozen thresholds continue to raise tax revenues through the backdoor due to fiscal drag. Unless thresholds are changed meaningfully the whole nation will suffer an ever-bigger tax burden. Increasing the personal allowance just for pensioners may be popular with pensioners but the rest of the tax paying public may feel that separate more beneficial rules for pensioners further increases intergenerational inequality.
More generally though the triple lock continues to be a political hot potato. The reality is if the policy is changed for the worse by either party it would so enrage a core voter base that it could prove disastrous for their election hopes but there are some significant structural problems with the policy.
A more sensible approach rather than constant tinkering would be to link pensions more closely to average earnings. This would represent a good alternative as it would create a more predictable and sustainable pension system. This model not only aligns pension growth with national economic performance but also fosters a fairer distribution of wealth across generations. This approach would mitigate the financial unpredictability associated with the triple lock, creating an easier way to effectively budget and ensure that pension increases do not disproportionately benefit one demographic at the expense of another.
In advocating for a shift towards a system pegged to average earnings, the conversation goes beyond the immediate financial implications to touch on the broader principles of fairness and sustainability. However, the truth is, given older generations vote in much larger numbers than their younger peers it would be too politically damaging for either party to take a more long-term view of the triple lock.
