State pension triple lock safe under Labour but pensioners face 'stealth tax rises'
Fiscal drag could affect pension incomes in years to come
GETTY
The state pension triple lock appears to be remaining in place under the next Government however pensioners across the UK are likely to be hit by a "stealth tax", experts are warning.
Earlier this week, Sir Keir Starmer announced the Labour Party's manifesto going into July 4's General Election with the Official Opposition making a series of pension pledges.
Notably, Labour have promised to maintain the triple lock which is the metric used to determine the yearly payment rate hikes for the state pension.
Thanks to this mechanism, retirement benefits are raised annually by the rate of inflation, average earnings or by 2.5 per cent.
In April, the full new state pension was increased by 8.5 per cent to £11,502.40 for the 2024-25 tax year, up from £10,600.20 in 2023-24.
With both major political parties committing to this yearly pay rise, pensioners will be guaranteed a boost to their retirement income but many could end up paying tax to HM Revenue and Customs (HMRC) down the line.
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Pensioners face being taxed on the state pension as it increases by the triple lock but the personal allowance remains frozen GETTYThis is primarily due to Chancellor Jeremy Hunt's decision to freeze tax allowances, which has seen thousands of pensioners dragged into higher brackets, including pensioners.
When incomes rise while tax thresholds stay the same, fiscal drag takes place with Hunt previously pledging to keep allowances frozen until 2028.
However, the Conservative Party has since pledged to introduce the "triple lock plus" if it remains in power which would see the tax-free allowance for pensions raised every year.
If implemented, millions of older households would avoid paying tax on their state pension but Labour has refused to outline a similar manifesto in their manifesto.
Debates over the state pension triple lock come amid ongoing concern over future funding for the retirement benefit.
Many experts have called for an overhaul of the pensions system to find a more sustainable way of paying for the state pension in years to come.
Gary Smith, a partner in Financial Planning at Evelyn Partners criticised Prime Minister Rishi Sunak and Sir Keir for not directly tackling these anxieties during the election campaign.
He said: "‘The affordability of the triple-locked state pension is a can that keeps getting kicked down the road and an election is not the time that either main party is likely to break that pattern."
According to pensions expert, the "triple lock-plus" is unlikely to come into effect based on the Tories' current standing in the polls and Labour's lack of support for it.
As such, state pension payments risk crossing the personal savings allowance in a couple of years time, which is currently frozen at £12,570.
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Rishi Sunak has pledged to introduce the "triple lock plus" if he wins the upcoming General Election PA | GETTYSmith added: "It’s questionable whether the Conservatives would have tabled this policy if they had a good chance of remaining in power, but it does at least shine a light on how frozen thresholds are raising the tax burden by stealth.
"Promises from both parties not to raise headline tax rates offer little comfort when we all know we’re going to be paying more tax anyway due to fiscal drag.
"One favour today’s workers can do for themselves is to assume the triple lock might not be sustainable for more than a decade, and that they need to save more than they think to make up for that."
Following the "triple lock plus" announcement last month, Shadow Business Secretary Jonathan Reynolds said he did "not think it's credible".
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