What is the triple lock plus – and what could it mean for pensions?

Rishi Sunak says the pledge will prevent millions of pensioners from paying more tax

Albert Toth
Wednesday 05 June 2024 10:04
Labour rules out matching the Tories’ ‘triple lock plus’ pledge

The Conservatives have unveiled plans to boost pensioners’ incomes with a new ‘triple lock plus’ pledge in a pre-election offer to older voters.

The new plans would raise the tax-free pension allowance every year in line with the triple lock. This means an increase in line with average wages, inflation, or 2.5 per cent – whichever is highest.

The tax-free allowance for both pensions and workers was frozen in 2021 at that year’s level of £12,570, and is not set to rise again until 2028. Before this, it would rise yearly with inflation.

Prime minister Rishi Sunak says the move “demonstrates we are on the side of pensioners”, adding that it aims to give “peace of mind and security in retirement”.

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What is the new ‘triple lock plus’ and how will it work?
What is the new ‘triple lock plus’ and how will it work? (Getty Images)

Those only receiving the state pension for income wouldn’t feel the benefit of this policy immediately. After rising 8.5 per cent in April, the state pension is £11,502 a year, meaning no tax is paid on it.

However, the OBR has forecast that the state pension is expected to be higher than the frozen personal allowance level by 2027.

The Conservatives say this would leave millions more pensioners paying income tax, which would be 20 per cent on everything they earn over the allowance.

For instance, if the plans had been in place in April 2024, the tax-free allowance for pensions would have risen to £13,638.45, as per the triple lock guarantee.

Labour has said the plan is not “credible”, and ruled out pursuing the policy if the party comes into power after July’s election.

“Why would anyone believe the Tories and Rishi Sunak on tax after they left the country with the highest tax burden in 70 years?” said shadow paymaster general Jonathan Ashworth.

Paul Johnson, director of the respected Institute for Fiscal Studies, has said that the ‘triple lock plus’ is largely a reversal of current Conservative policy, rather than a new offering from Mr Sunak.

“This is simply a reversal of a tax increase that the Conservatives proposed, the idea is that the allowance doesn’t rise at all in line with inflation for the next three years,” he said.

“So half of the cost of this is simply not imposing the tax increase that was previously proposed.”

Mr Sunak said: “Thanks to the Conservatives’ Triple Lock, pensions have risen by £900 this year and now we will cut their taxes by around £100 next year.

“This bold action demonstrates we are on the side of pensioners. The alternative is Labour dragging everyone in receipt of the full state pension into income tax for the first time in history.”

What is the state pension triple lock?

The triple lock guarantee, first implemented in 2011, means the state pension increases year-on-year by the highest of three measures. These are:

  • Inflation, taken from the previous September’s Consumer Price Index (CPI) figure
  • The average wage increase in the UK
  • Or 2.5 per cent, if both inflation and earnings are lower than this percentage

Because CPI stood at 6.7 per cent in September 2023, the 8.5 per cent average wage rise represented the highest increase.

In 2023, the state pension increased by 10.1 per cent, in line with September’s record inflation figure. This marked the UK’s highest-ever state pension increase.

The following April, it went up by 8.5 per cent.

The triple lock was introduced to ensure that the state pension would not be outstripped by rising prices, nor by the average spending power of those in work.

The measure has been criticised for potentially lacking long-term sustainability, costing the government more each year. In 2023/24, pension payments cost the government an estimated £124.3 billion.

Defending the triple lock, Work and Pensions Secretary Mel Stride said it protects pensioners on fixed incomes, who cannot ‘work more hours or get a different job’.

What is the state pension age in the UK?

The current state pension age in the UK is 66. This is the age at which you can retire and start receiving your state pension. Before this, you can only withdraw from a personal pension, depending on your provider, and usually not before you reach 55.

The state pension age is set to rise from May 6, 2026, to 67. This transition will be gradual, with the state pension age being 66 and 1 month for someone born on April 6, 1960, 66 and 2 months for someone born on May 6, 1960, and so on.

It will then hit 67 for anyone born on or after March 6, 1961.

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