State pension Triple Lock Plus warning as pensioners get blame for £300 Sunak tax cut | Personal Finance | Finance

The nation’s 12.5million state pensioners have one less thing to worry about this General Election as both the Conservative and Labour parties have pledged to preserve the state pension triple lock if they win on July 4. This will come as a huge relief, as the triple lock has shown its worth by granting pensioners two bumper pay rises in a row, of 10.1 percent last year and 8.5 percent from April.

This has helped many survive the cost-of-living crisis, although the full new state pension of £11,502 a year is hardly riches and many on the old basic state pension get a lot less.

Last week, Sunak went a step further by pledging to upgrade the triple lock to a quadruple lock, if returned to power.

While this has been dubbed a naked grab for votes it may also prove a successful one, with huge appeal to the Tory party’s key voter segment. Yet it has also created controversy.

Currently, the triple lock increases the state pension each year by inflation, earnings or 2.5 percent, whichever is highest.

Under Sunak’s quadruple lock, or triple-lock-plus, the personal allowance will also increase every year using the same mechanism.

Currently, the personal allowance stands at £12,570, which is only £1,068 higher than the maximum new state pension.

This means pensioners only need to earn a tiny amount before paying basic rate income tax at 20 percent.

While annoying, that isn’t a major problem today but it soon could be as chancellor Jeremy Hunt has frozen the personal allowance all the way through to 2028.

If the full new state pension increased by five percent a year for the next two years it would exceed the personal allowance and become taxable.

This would see the DWP giving with one hand and HMRC immediately taking back with the other. Which is a huge waste of everybody’s time and money.

Hence the pledge.

Yet in practice, Sunak is only solving a problem of his own making. He was the one who froze the personal allowance in the first place.

The Conservatives reckon this will give around eight million state pensioners a tax cut worth £100 next year, which will rise to nearly £300 a year by the end of the Parliament.

However, Paul Johnson, director at the Institute for Fiscal Studies, said this giveaway is only half as generous as it looks. “The £100 ‘saving’ next year is mostly just avoiding a £100 tax increase, rather than an actual giveaway.”

That hasn’t stopped the critics.

Mike Ambery, retirement savings director at Standard Life, said pensioners already have one major tax advantage as they are exempt from paying National Insurance on earnings. Now they would get another.

Worse, not every pensioner needs extra financial support. “While there are a large group of pensioners struggling to get by, there are also many who are comparatively well off.”

Some argue that the quadruple lock will increase intergenerational inequality but Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, points out that pensioners did not benefit from this year’s twin National Insurance cuts, as they do not pay NI. “This change gives pensioners a VIP invite to the tax cut party.”

She added that retirees who have large company and personal pensions, or part-time earnings, will continue to pay plenty of income tax after they reach retirement.

There is a risk that the quadruple lock could backfire on pensioners, by reviving calls for the state pension to be means tested.

Personally I don’t think that will happen. Means testing would be incredibly complicated. It could also deter people from saving towards retirement.

What’s the point in scrimping and saving if your reward is to get a lower state pension?

People won’t bother.

However, Sunak’s triple-lock-plus will add £2.4billion to the annual state pension bill, and we need a serious debate about how to make it sustainable in the longer run. Demonising today’s pensioners won’t help anybody.

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