State pension will never be taxed, vows Sunak

Department for work and pensions
Department for work and pensions

The state pension will never be taxed under the Conservatives, Rishi Sunak will declare on Tuesday.

The Prime Minister will announce plans to give retirees “peace of mind and security” by automatically raising the threshold at which they start paying income tax each year so that it stays ahead of the state pension.

Labour failed to match the pledge – dubbed the quadruple lock – on Monday with the Tories warning that Sir Keir Starmer was lining up a huge tax raid on the elderly.

It comes after criticism of the Tories for freezing income tax thresholds, which pulled people into higher tax bands, or into paying income tax for the first time through fiscal drag.

Downing Street said its proposals would mean eight million pensioners would save £100 in tax from next year and almost £300 a year by the end of the decade.

On current forecasts, if the threshold stayed the same and the state pension increased as expected, retirees would start paying income tax on their state pension for the first time in 2027.

On Monday, Mr Sunak said ahead of the announcement: “I passionately believe that those who have worked hard all their lives should have peace of mind and security in retirement.  
“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.”

Laura Trott, the Chief Financial Secretary to the Treasury, said the pledge would mean that under the Tories pensioners would “never” pay income tax.

Writing for The Telegraph, she said: “This Government have always protected and will always protect the most vulnerable. That has been our track record since 2010, and that is what we will continue to do.

“There is a clear choice for pensioners at this election. Choose the Conservatives with a clear plan, taking bold action to secure your future.

“Or risk Keir Starmer, who has no plan, whose party neglected pensioners last time, with every sign they’d do it again.”

Income tax threat

The threshold at which all Britons, including retirees, start paying income tax is set at £12,570, while annual state pension payments are now £11,500.

But while the state pension is projected to carry on rising sharply thanks to the triple lock, income tax thresholds have been frozen until at least 2028.

On current forecasts, the state pension is expected to rise by £430 next April and by £1,700 by the end of the decade, reaching £13,277 a year.

It means that, without action, almost 13 million retirees will be dragged into paying the basic 20 per cent rate on the annual increases to their payments from 2027.

They would also have to start filling out tax returns, leaving elderly people confronted with complex paperwork and HMRC snowed under with extra work.

Under Mr Sunak’s plan, the income tax threshold for retirees would be included in the triple lock, meaning that it will always go up by the same rate as the pension.

Introduced by the Tories in 2010, the mechanism means pensions always rise by whichever is highest of inflation, increases in average earnings, or 2.5 per cent.

The Prime Minister’s plan for a “triple lock plus” would cost £2.4 billion a year, with No 10 saying it would be paid for by clamping down on tax avoidance.

Mel Stride, the Work and Pensions Secretary, added: “The last Labour government completely failed pensioners, with a £118 billion pensions tax raid and an insulting 75pc increase to the state pension.

“Sir Keir Starmer can pay lip service to supporting pensioners but we know it will always be the same old Labour, putting our pensioners at the back of the queue.”

As a result of the pledge, the £1,000 buffer between the value of the state pension and the income tax threshold for retirees would be effectively baked in.

That would mean around five million pensioners who have no private income and rely purely on their state handouts will benefit by never having to pay tax.

The eight million retirees who do have other income, like a private pension, would also be better off as they would face no tax on the first £1,000 of it.

Tory strategists will hope that the policy can win back pensioners who have become disillusioned with the party’s record in recent years.

In particular, there was a fear that the elderly felt left out of recent Budgets, where Jeremy Hunt announced big National Insurance tax cuts for working people.

On Monday night, Labour dismissed the pledge as “desperate” and said the Tories planned to undermine the state pension by abolishing National Insurance.

Jonathan Ashworth, the shadow paymaster general, said: “This is just another desperate move from a chaotic Tory party torching any remaining facade of its claims to economic credibility.

“Labour will protect the triple lock. But Rishi Sunak is planning to reward Britain’s pensioners for their loyalty by stabbing them in the back, just like he did to Boris Johnson and just like he has done to his own MPs.”