Thousands of pensioners to be slapped by ‘retirement tax’ under Labour, Tories warn

Prime Minister Rishi Sunak has promised to raise the tax-free allowance for pensioners every year so it is always higher than the annual full state pension.

If the Tories win the General Election on July 4, pensioners will not be dragged into paying more income tax on the benefit.

Due to the Chancellor Jeremy Hunt freezing tax allowances until 2028, Britons have been pulled into higher tax brackets thanks to fiscal drag.

This is the term used to describe when tax thresholds remain at the same level over a period of time while incomes rise.

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Many Britons are finding themselves paying more to HM Revenue and Customs (HMRC) with those on the state pension at risk of paying tax on the benefit in the years to come.

However, Reeves has refused to adopt the “triple lock plus” pledge in a move which the Tories have claimed is the equivalent of a “retirement tax”.

Chief Secretary to the Treasury Laura Trott said: “Labour have decided not to match our commitment to increasing personal tax thresholds for pensioners, dragging thousands of pensioners into a new retirement tax.

What is the “triple lock plus”?

As part of the Conservative policy, income tax threshold for pensioners would be linked to the triple lock.

This is the metric used to determine the annual rate hike for the state pension with payments going up by either the rate of inflation, average earnings or 2.5 per cent; whichever is higher.

If this were to be introduced, the £1,000 difference between the full new state pension and the tax threshold would be permanent.

Such a policy would reportedly cost the taxpayer about £2.5billion a year with the Tories claiming the money would be found by clamping down on tax avoidance.

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After a speech to business leaders earlier this week, Labour’s Shadow Chancellor claimed the party was committed to the triple lock but not this latest promise from the Government.

Reeves said: “Even before today they had racked up £64 billion of unfunded tax cuts,” she said, referring to the long-term Tory aspiration to abolish National Insurance.

“The only reason that pensioners are looking for the first time at paying income tax on their basic state pension is because the Conservatives lost control of the economy.

“I’ve been very clear – I want taxes to be lower. But I’m not going to make any commitments where I can’t say where the money is going to come from. Unlike the Conservatives, I will never play fast and loose with the public finances.”