A recent report reveals that some individuals are already paying income tax on their state pensions, despite Conservative promises to keep it tax-free.

Currently, the standard new state pension is below the £12,570 threshold for income tax. However, future increases may push it above this limit. The Conservative manifesto’s “triple lock plus” aims to raise the tax-free threshold to prevent state pensions from being taxed.

Pensions consultancy LCP indicates that the variability in state pension amounts means some recipients are already paying taxes and will continue to do so due to the system’s complexities and allowances.

The issue of pension taxation is frequently highlighted by voters through the BBC’s “Your Voice, Your Vote” project. Many have sought clarity on pension policies, with some noting that parts of their pension income are already taxed.

Public Concerns Over Taxation

Alan from West Sussex questions, “Can you guarantee my pension will be subject to the triple lock and free of tax?” Major parties have pledged to maintain the triple lock, ensuring annual increases in the state pension based on the highest of wages, inflation, or 2.5 percent.

However, with tax thresholds frozen for the next three years under the main parties’ plans, there is a possibility that many state pension recipients could be taxed. The Conservatives’ proposed triple lock plus intends to prevent this by raising the tax-free threshold.

Current Taxation Status

Approximately 12 million people receive the state pension, which remains below the £12,570 tax-free threshold. Yet, LCP’s research suggests that around 2.5 million individuals receive more under the state pension system, resulting in taxable income. This complexity arises from the old state pension system, which includes additional state pension money for some, and the new state pension system, which offers a standard rate but includes transitional measures to retain entitlements from the old system. Consequently, about 300,000 pensioners receive enough to be taxed.

LCP partner Sir Steve Webb, former Liberal Democrat pensions minister, noted: “Pension amounts vary significantly, from a few pounds a week to hundreds of pounds. We estimate that around 2.5 million pensioners, or more than one in five, have state pensions exceeding the income tax threshold. These pensioners will continue to be taxpayers even if the income tax allowance is linked to increases in the state pension rate.”

Political Reactions

A Conservative Party spokesman stated: “Under the triple lock plus, the tax-free allowance for pensioners will rise with the fastest of prices, earnings, or 2.5 percent —just like the state pension.” He also claimed that under Labour, millions of pensioners would face higher taxes. Labour has countered, arguing that the Conservative plan lacks credibility.

Personal Experiences

Rosie from Scotland pointed out the misconception that pensioners do not pay tax, emphasising that “state pensions are taxable income and many with small work pensions are taxed due to the freezing of tax thresholds.”

With tax thresholds frozen for the next three years, more individuals, including pensioners with additional income from workplace or private pensions, will be drawn into paying more tax as their income rises.

 

 

 

 

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Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.