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What's next for state pension? Sunak unveils 'Triple Lock Plus'

pension STAFFORDSHIRE, ENGLAND - MAY 28: British Prime Minister Rishi Sunak speaks Mark Meaney (L), Works Manager and Conservative parliamentary candidate Jonathan Gullis (R) during a visit to a ceramic manufacturing plant during a Conservative general election campaign event on May 28, 2024 in Staffordshire, England. Rishi Sunak announced last week that the UK General Election will be held on July 4th, kicking off a 6-week period of campaigning. (Photo by Alastair Grant - WPA Pool/Getty Images)
The Conservative party unveiled the Triple Lock Plus on Monday which would introduce a new age-related allowance for pensioners. (WPA Pool via Getty Images)

The state pension was always going to be a key battleground during the general election, but the Conservatives have pushed the boat out with the unveiling of the Triple Lock Plus on Monday. Under this new policy the personal allowance for pensioners will be increased in line with the triple lock by introducing a new age-related allowance.

This means that for pensioners, both the state pension and their tax-free allowance will always rise in line with the highest of earnings, wages or 2.5% — the new triple lock plus. In theory this means the state pension won’t be taxed.

This move addresses concerns that pensioners don’t benefit from recent cuts to national insurance and that frozen personal allowances risk bringing people solely reliant on state pension into tax paying territory in the coming years. It is thought the policy will save pensioners £275 each by 2030 — at a cost of £2.4bn a year.

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We are yet to get more details on this pledge but there could be some tricky areas to iron through — most notably how this age-related allowance will work in practice.

Read more: The tax pledges to watch for in the UK election

The state pension currently sits at around £11,500 per year. However, many pensioners, particularly those who retired under the old state pension system, get much more than this if you take things like state second pension into account. So there is the question of: "Will this allowance rest at the level of the full new state pension or will it need to be a bit more tailored?"

The pledge will also reignite the debate over intergenerational fairness. The triple lock has always been seen as extremely generous and this policy makes it further still. In the meantime, anyone of working age will continue to face the threat posed by frozen tax thresholds — including the personal allowance. It has dragged an extra 2.6 million people under the age of 65 into paying tax since the 2020/21 tax year and is set to remain in place until April 2028. There will be plenty of new taxpayers of working age who wonder why they should pay a higher rate of tax purely because of their age.

With the state pension bill continuing to boom, the concern is that future governments will be forced into making big changes such as hiking state pension age still further in a bid to manage costs. Given that healthy life expectancy means that many people will be forced to leave work well before state pension age, it means people may be left with a gap of several years where they are too ill to work but too young to get state pension. This could cause them real financial hardship in terms of making their pension stretch to cover those extra years.

Whoever wins the general election needs to implement a far-reaching review of the state pension system as a whole to make sure it remains sustainable in the long-term.

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