Almost 2.5 million retirees will pay tax on state pension despite triple lock plus policy, says Steve Webb

The former pensions minister argues that the Conservatives’ claim that pensioners will never pay income tax on their state pension is incorrect. We look at the figures.

Older couple looking worried
The Conservatives say they will introduce a new tax-free personal allowance for pensioners if they win the election
(Image credit: Getty Images)

Pensions continue to be a big topic during the election campaign, with the main parties all committing to the state pension triple lock.

But the Conservatives have gone a step further, publishing forecasts that the state pension will hit £13,200 by 2029, and unveiling a “triple lock plus” policy.

The latter involves keeping the state pension triple lock, which raises the pension each year in line with wage growth, inflation or 2.5%, whichever is highest.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

It also introduces a new tax-free personal allowance for pensioners, which would increase each year in tandem with the triple lock, cutting the amount of income tax that retirees pay.

The Conservative Party website declares: “So if you vote to stick with the plan, Rishi Sunak and the Conservatives will not only guarantee the triple lock - we’ll introduce the triple lock plus. 

“This means the personal allowance for pensioners will rise every year - ensuring they NEVER pay tax on their state pension.”

However, former pensions minister Steve Webb, who is a partner at the consultancy LCP, says this claim is incorrect.

His research finds that nearly 2.5 million pensioners will still pay tax on their state pension after implementation of the triple lock plus policy.

We delve into the figures and look at which pensioners already pay income tax on their state pension, and if and how this would change due to triple lock plus.

How would the triple lock plus policy work? 

The full new state pension is worth about £11,500 a year. This is only slightly below the tax-free personal allowance of £12,570.

Many pensioners have other income, such as from personal or workplace pensions, part-time work, investments, and/or buy-to-let. So, if their total income is more than the personal allowance, they will have to pay tax.

Separate analysis by LCP suggests that about 9.15 million pensioners will pay tax in the current tax year. With the state pension rising in line with the triple lock, thousands more retirees could be dragged into the income tax net over the next few years.

In fact, pensioners who only receive the state pension - and no other income - face the prospect of being taxed on this money.

This is where triple lock plus comes in. The Tories pledge to “triple lock” the personal allowance for pensioners, ensuring that the pensioner tax allowance is always above the standard new state pension rate.

Why won’t the policy protect all retirees from paying tax on their state pension?

LCP claims that around 2.5 million pensioners will still be paying tax on their state pension even if the triple lock plus policy was introduced. 

Steve Webb explains: “With record numbers of pensioners now paying income tax, there is an understandable focus on pensions and tax. But much of the discussion has assumed that pensioners typically receive a standard rate of pension such as the new flat rate of around £11,500 per year. 

“The reality is that the amounts pensioners receive vary hugely, from a few pounds a week to hundreds of pounds a week. We estimate that more than one in five of all pensioners have state pensions in excess of the income tax threshold.”

This means that these pensioners would “overwhelmingly continue to be taxpayers even if future policy linked the income tax allowance to increases in the headline rate of state pension”.

Why do some pensioners receive more than £11,500 a year from the state pension?

The new state pension pays about £11,500 a year (if you qualify for the maximum amount). But most pensioners do not receive the new state pension. Instead, the majority are on the old state pension system.

In 2023/24, there were 8.4 million pensioners who reached state pension age before 6 April 2016 and therefore come under the “old” state pension system. And 3.2 million who reached pension age after this date who come under the “new” state pension.

According to Webb, 2.1 million pensioners on the old system – roughly evenly split between men and women – get pensions now that are in excess of the tax allowance and will continue to be so even if allowances and pensions rose by the triple lock.

In addition, around 300,000 pensioners - mainly men - on the new state pension are receiving pensions above the income tax allowance. This may be because of transitional protection of accrued rights built up prior to 2016. 

In simple terms, those who had built up a pension under the old rules that is bigger than the new flat rate as at 2016 were allowed to retain this higher entitlement even when the new rules were introduced. 

Will the triple lock plus lower pensioners’ tax bills?

Yes, if the personal allowance increases for pensioners, it will reduce their tax bills. 

But LCP argues that when the Tories say “the personal allowance for pensioners will rise every year - ensuring they NEVER pay tax on their state pension” this is not true for all pensioners. Because some retirees receive a state pension that already exceeds the personal allowance.

LCP says: “The ‘triple lock plus’ policy will, of course, deliver a lower tax bill for millions of pensioners compared to a policy of continuing to freeze personal allowances for pensioners. But our analysis shows that for around one in five pensioners it will not deliver the stated objective of ensuring that their state pension is completely free of income tax.”

To be fair to the Conservatives, while they only refer to the “state pension” on their website, they do mention the “new state pension” in their manifesto when talking about triple lock plus.

On page four they pledge to: “Cut tax for pensioners with the new triple lock plus, guaranteeing that both the state pension and the tax-free allowance for pensioners always rise with the highest of inflation, earnings or 2.5% – so the new state pension doesn’t get dragged into income tax.”

On page 15, they mention the new state pension again, saying that the party will “ensure the new state pension is not dragged into income tax”.

But as Webb has highlighted, even if the Tories are only making the pledge about the new state pension - and not the old state pension - this may still be incorrect, because a pensioner on the new state pension could still receive more than the £11,500 figure, and therefore pay tax on the income.

Ruth Emery
Contributing editor

Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.

She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.