Prime Minister Rishi Sunak surprised many by calling a general election for 4 July, and to woo the pensioner vote he has promised to raise the level of tax free pension allowance.

The plans revealed that the ceiling for personal tax allowance for pensioners will be raised by at least 2.5%, or will increase in line with the highest of earnings or inflation.

It’s a policy that mirrors the triple lock pension system that was introduced in 2011, where a state pension increase will match either the rate of inflation, the average increase in wages or a rise of 2.5%.

The Conservatives has said that the plans would cost a total of  £2.4 billion a year by 2029-30.

It’s to be funded by raising £6 billion through improving tax collection and cracking down on tax avoidance and evasion on an annual basis.

What this means for you

The Conservatives have said that the policy will save you £275 per year by 2030.

The state pension has been rising at a faster pace recently due to wages matching the sky-high inflation created by the Covid pandemic, and the Russian invasion of Ukraine over the past few years.

In April the state pension rose by a significant 8.5%, as inflation has eased down to 2.3% in the year to April, and is now calculated at from £203.85 to £221.20 per week compared to the same month last year.

According to the independent watchdog the Office of Budget Responsibility, as the state pension has been rising, it is expected that it will climb over the tax fee personal allowance by 2027, which currently is £12,570.

The government says that this will mean millions more pensioners paying tax.

It’s a growing problem as tax thresholds have been frozen since 2021.

Both the Conservatives and Labour have said they will keep thresholds frozen until at least 2028.

Government figures may not be accurate

Although not everybody is convinced that the benefits of the tax allowance increase are going to be as much as the government advertised.

Accountancy firm Blick Rothenberg looked into the savings figure of £275 and then revealed that the true number was more likely to be £11 less at £264.

Overall this means that pensioners will receive less than promised over the course of the next parliament the firm said.

It calculated that the difference is due to an error, where the Conservatives said that the 2029-30 tax-free allowance to be £14,450 instead of £14,430.

Also, the firm said that the government got it wrong when it said in the initial announcement that the current new state pension was worth £11,542, instead of the actual figure of £11,502.

It urged that the government to ensure that it gets the figures right.

Charities deal with rising concerns

Age UK and Independent Age have both said that they are experiencing an increase in calls, as there is confusion over the issue.

Joanna Elson, the chief executive of Independent Age has said that many are unsure of where they really stand over the tax situation, and what they will have to pay in the end.

Those who are on a low income are struggling to make ends meet, and are getting more worried over the fact they might have to pay tax on their pensions as the state pensions increase.

The recent national insurance tax cuts cannot make any difference to pensioners, as they do not pay it and the reductions do not apply.

Lily Megson, the  policy director at the advisory group My Pension Expert, said:

"It’s a clear sign that Sunak is reverting to the old tried-and-tested model of trying to woo older voters immediately before a general election.”

“Sadly, although the 'Triple Lock Plus' undoubtedly has merits, last-minute policies from a party bracing for defeat are not what pension planners need.”

It’s a situation that has been happening for far too long for those in or nearing retirement have been overlooked.

Any significant policies to help address the financial challenges faced by over-60s have been lacking for many years, especially during the cost-of-living crisis.

“Sunak's late bid to close the gap on Labour by announcing favourable tax changes for those receiving a pension will do little to offer meaningful long-term assistance to those who have struggled under the burden of high inflation, high interest rates and a high tax burden." She added.