The state pension triple lock is “bankrupting” Britain and should be “phased out” with an alternative annual payment rate hike mechanism being put in its place, the Labour Government has been called.
MPs are increasingly becoming concerned over the growing cost of the triple lock, which guarantees state pensions rise every year in line the rate of inflation, wage growth or 2.5 per cent; whichever is highest.
The state pension triple lock has been accused of ‘bankrupting’ Britain
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Yesterday, MPs debated the state of pensioner poverty in the UK with the triple lock coming under fire for contributing to Government’s growing spending on welfare and making the state pension no longer sustainable for future generations.
Sir Edward Leigh, the Conservative MP for Gainsborough, said: “I am very grateful to the Minister to be in receipt of the triple lock, but it is not an effective way of tackling pensioner poverty and it is bankrupting the country.
“I am sorry not to be party political, but can we not have a consensus between the parties that we should phase out the triple lock, concentrate resources on pensioners in real poverty and have an agreement on dealing with benefits generally to get people back into work? We should work together.”
In response, Pensions Minister Torsten Bell said: “I am always keen to work together with the Father of the House. He mentions the triple lock, but we are doing far more things to tackle pensioner poverty.
“There were 900,000 pensioners eligible for pension credit under the Conservatives who were not claiming, and that is why we have brought forward the biggest take-up campaign ever seen.
“The marketing campaign this year will run from September to the end of the financial year, we are carrying out research on what works to encourage take-up of Pension Credit and we are stepping up data sharing across Departments.”
As well as committing to the triple lock, the Chancellor also extended the current freeze to personal tax thresholds for an additional three years until the 2030-31 financial years.
With this move, analysts have noted the full new, state pension is close to exceeding the personal allowance, which is the amount people being to pay tax on income and is set at £12,570.
Thanks to the triple lock, payments are being awarded a 4.1 per cent hike, which means the full, new state pension will rise to around £12,548 per year; a stone’s throw away from the personal allowance.
As such, the retirement benefit from the Department for Work and Pensions (DWP) will likely be subject to tax from payments alone unless there is a change in policy in next year’s Budget.
In the days following her fiscal statement, Ms Reeves asserted that those reliant on the state pension alone will not be levied with a tax bill despite the impact of fiscal drag.
This is term given to the phenomenon when incomes or inflation rise during a period of time when tax thresholds are frozen, resulting in people paying more to HM Revenue and Customs (HMRC).
Nigel Green, the chief executive of global financial advisory deVere Group, warned: “The state pension is now almost level with the personal allowance. Any private pension income, savings interest or taxable benefits will push people over the threshold.
“Many who have never paid tax in retirement will soon find themselves in HMRC’s sights. If nothing changes, the state pension will overtake the personal allowance entirely within a few years. That would make every pound of additional income taxable for millions.”
Maike Currie, PensionBee’s vice president of Personal Finance, added:: “The freeze in the personal allowance until 2031 means the state pension will overtake it by 2027 – a first in modern history. It’s no wonder pensioners have been worried they’d pay tax on nothing more than their state pension income.
“While the Chancellor has confirmed that until the end of Parliament in 2029 those with only the state pension won’t be taxed, saying that the Government is working on a solution, there is very little detail on how this will work in practice, with many unanswered questions.”