Some already pay state pension tax, reports suggest

Some people already pay income tax on their state pension, a report suggests, despite a Tory promise that it will remain tax-free.

The new standard state pension is currently below the £12,570 threshold after which income tax is paid, but future rises could take it above that level.

The Conservative manifesto includes the triple plus lock – a plan to raise the tax-free threshold so that the new state pension is not dragged through the income tax net.

However, pensions consultancy LCP says the amount people already receive in the state pension varies and means some already pay and will continue to pay tax on it.

This is a result of complexities and limitations in the current system.

Pension taxation is a key issue raised by voters via the BBC Your Voice, Your Vote the project.

Many people have been in touch seeking clarity on pension policies, with some pointing out that some of their pension income is already taxed.

Alan, from West Sussex, asks: «Can you guarantee my pension will be triple locked and tax free?»

All the main parties have said they will stay triple lock – a commitment to increase the state pension every year by the higher of wages, inflation or 2.5%.

With tax thresholds frozen for at least the next three years under the main parties’ plans, it raises the possibility that many people will be taxed if they only receive the state pension.

However, the Tories have said they would introduce the triple plus lock, which would raise the threshold to ensure this does not happen.

Nearly 12 million people receive the state pension and the standard rate is below the current threshold of £12,570 tax-free.

However, LPK research suggests that 2.5 million people already receive more in the state pension system which means they are and will continue to be taxed.

The old state pension system – for those who reached pension age before 2016 – is complex, with some people also receiving additional state pension money.

The new subsequent state pension system is designed around a standard rate.

But even under this system, some pensioners may receive more than the standard amount, due to transitional measures ensuring that people who had built up pensions under the old rules could keep their rights. About 300,000 people would receive enough to bring them into the income tax bracket, the report said.

LCP partner Sir Steve Webb, who is a former Liberal Democrat pensions minister, said: “The reality is that the amounts pensioners receive vary widely, from a few pounds a week to hundreds of pounds a week.

«We estimate that around 2.5 million pensioners, or more than one in five of all pensioners, have state pensions that exceed the income tax threshold. These pensioners would largely continue to be taxpayers even if future policy would link the income tax allowance to the increase in the total state pension rate».

A Conservative Party spokesman said: «Under the triple plus lock, the tax-free allowance for pensioners will rise in line with faster prices, earnings or 2.5% – just like the state pension.»

He said that under Labour, millions of pensioners would pay more tax.

Labor has said the Tory plan is not credible.

Rosie, from Scotland, said she was under the impression that pensioners don’t pay tax, but «state pensions are taxable income and many on small work pensions are taxed because of the freeze on tax thresholds».

Income tax thresholds will continue to rise for the next three years under plans by Labour, the Conservatives and the Liberal Democrats.

This means that more people will be drawn to pay more taxes as their incomes rise.

This includes some pensioners who receive income from a workplace or private pension on top of their state pension income.