Triple lock plus defined – What is it and the way wouldn’t it affect my pension?

Prime Minister Rishi Sunak announced that if elected, he will introduce the “Triple Lock Plus” – but what is it? and how would that impact you?

The policy would copy and paste the triple lock rules and place them on the personal allowance for pensioners. The goal behind the plan is to stop pensioners from paying more of their retirement income in taxes. Announced at 10:30pm last night, the Tories said the plan would cost around £2.4billion a year by 2030.

According to the Tories, the policy would amount to a tax cut of around £100 for eight million pensioners next year and rise to almost £300 a year by the end of their parliamentary term. However, Labour described the plan as a “desperate move” noting that the party’s plan to axe National Insurance would mean pensions would need to be cut.

Jonathan Ashworth, the shadow Cabinet Office minister, said: “Why would anyone believe the Tories and Rishi Sunak on tax after they left the country with the highest tax burden in 70 years? This is just another desperate move from a chaotic Tory party torching any remaining facade of its claims to economic credibility. Not only have they promised to spend tens of billions of pounds since this campaign began, they also have a completely unfunded £46billion policy to scrap national insurance that threatens the very basis of the state pension.”

So if elected, how would this policy impact you?

What is the pension Triple Lock?

The triple lock was introduced by the Conservative-Liberal Democrat coalition Government in 2010. It guarantees that the state pension rises every April by whichever is highest out of: inflation (using the previous September rate of Consumer Prices Index inflation), wages (average growth between May and July), or 2.5%.

In April 2023, the state pension went up by a record 10.1%, in line with the previous September measure of inflation. This year the state pension rose by 8.5% which was in line with the amount wages rose by between May and July last year.

In April, the new full, flat-rate state pension (for those who reached state pension age after April 2016) rose from £203.85 to £221.20 a week – or £11,500 a year. The old basic state pension paid to those who reached state pension age before April 2016 rose from £156.20 a week to £169.50 a week – equivalent to a more than £600 annual increase to £8,814.

What is the personal tax allowance?

The personal allowance is the amount you of income you earn every year without having to pay tax on it. The personal allowance threshold currently stands at £12,570 and is set to remain frozen at this rate until April 2028. Earn less than the personal allowance and you will pay no income tax at all.

Under the personal allowance, you can earn up to £12,570 without paying tax on it, and any amount over you do. For example, if you earn £50,270 – this is the highest amount you can earn under the 20% tax band – you pay 20% tax on £37,500 of it. You do not pay any tax on the first £12,570 you earn.

The personal allowance also includes income from your pensions. This means if your pension income is over £12,570 then you will pay tax on the amount above it. For example, if your overall pension earnings are £14,000 a year – then you will pay 20% tax on £1,430 over it.

How would the Triple Lock Plus impact me?

So coined the “triple lock plus”, if elected the Tory party will increase a pensioner’s personal allowance in line with either average earnings, inflation or by 2.5% – whichever is higher – from next April – echoing the rules on annual state pension increases.

The policy would also guarantee in law that pensioners’ personal allowance will always be higher than the level of the new state pension. So next year, the Tories say the pensioner personal allowance would rise to £13,040, with the year after it rising to £13,370. When the personal allowance freeze ends in 2028 for everyone else, the state pension is predicted to be at £12,893 a year. But by then, under the Tory plans, the personal allowance for pensioners would sit at £13,710.

According to the Pensions and Lifetime Savings Association, a pensioner receiving £31,300 annually, which is the amount required for a “moderate” retirement, would save around £228 in tax per year. In 2028/29, the pensioner personal allowance would sit at £14,060 and by 2029/30 it will be at £14,450 – in comparison the normal personal allowance would be at £12,820 and £13,080 respectively.

If the policy was introduced this tax year when state pensions rose by 8.5%, this would’ve seen the pensioner’s personal allowance rise to £13,638 this year.

Pensioners who fall into the additional rate band, earning more than £125,140 a year, could end up worse off under this policy. This is because additional ratepayers do not benefit from the personal allowance. The personal tax-free allowance goes down by £1 for every £2 earned over £100,000.