Earlier this month Rishi Sunak struggled to reassure the Loose Women audience that he doesn’t “hate pensioners.” Perhaps his policy announcement this morning will help.
You’ve heard of the triple lock: a guarantee that pensions keep pace with rising prices and wages (in line with whichever is the highest of three numbers: inflation, wage growth, or 2.5 per cent). Today Sunak has announced Triple Lock Plus, which keeps your dentures whiter than white by also raising the personal tax allowance in the same way.
The result is simple: the government will spend a lot of money to give a barely noticeable bung to people who don’t need it. The Conservatives estimate the cost of the policy by the end of the next parliament will be £2.4bn a year – which is more than twice what the UK spends on libraries. And, it will get significantly more expensive over time. They also estimate that the benefit to pensioners who receive it will be around £100.
The big, underlying problem with this policy is that retirement savings are distributed even more unequally than wages. Over 90 per cent of all private pension wealth is held by the wealthiest third of people, according to the ONS. The bottom third have nothing.
This means that the 48 per cent of people over 65 who don’t pay any tax (because their incomes are so low) will continue to not pay any tax. A full year’s state pension income is £10,600, well below the current £12,570 threshold.
Wealthier pensioners, on the other hand, have so much money – the median private pension pot for the top 10 per cent is £637,500 – that this extra £100 a year is derisory. One explanation for these brimming pension pots is that these people already received tax relief when they paid into their private pensions. As far as the upper wealth decile is concerned, £100 is one Jo Malone scented candle.
The reality, then, is that most pensioners are not earning enough to have the Triple Lock Plus make any difference. Almost all of the rest are earning so much that they won’t notice. Between these two groups, there is a small number of people who would have been pushed into paying income tax by current policy. The Institute for Fiscal Studies estimates that the Triple Lock Plus would take about six per cent of pensioners, or 750,000 people, out of paying tax compared to current policy.
There’s a risk that Triple Lock Plus might just help to remind pensioners who’s actually been taking their money: in 2010, the coalition government ended the policy that gave pensioners an extra £3,015 a year in tax-free allowance. In April 2021, Rishi Sunak froze the thresholds on income tax, pushing millions of people into paying more tax at higher rates: for the average pensioner this is a tax hike of £770 a year. In 2022, Jeremy Hunt extended this policy to 2028. It was the Conservatives, too, who suspended the triple lock in 2022-23, and talked about suspending it again last year.
Helpfully, Sunak’s own Treasury has told the public about the real extent to which the state pension is taxed. Last year almost 23,000 people signed a petition to “remove income tax on the state pension,” to which the Treasury responded by explaining that the state pension isn’t enough to pay tax upon. It also responded that:
“Removing income tax from the State Pension would add complexity to the tax system and those paying higher rates of tax would receive the greatest benefit. Lower-earning individuals with income below the higher rate threshold would benefit less and those earning below the [personal allowance] would not benefit at all.”
Over time, Triple Lock Plus would become more effective, because we have an ageing society in which people are saving less for retirement. But by then – as even Work and Pensions Secretary, Mel Stride, has admitted – it will almost certainly be unaffordable. These are hard problems for our economy, and they will not be solved by doing a slightly stronger version of the same dodgy policy.
[See also: Tory disunity is poisoning Rishi Sunak’s campaign]
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