The Conservatives have promised to raise the tax-free pension allowance via a “Triple Lock Plus” if they win the general election.
Under the plans, the personal allowance for pensioners will increase at least 2.5% or in line with the highest of earnings or inflation.
Prime Minister Rishi Sunak said the scheme “shows we are on the side of pensioners,” who the Tories say will save £275 by 2030.
Labour called the policy a “desperate move from a chaotic Tory party”.
At the moment, the state pension already rises in line with whichever is the highest – average earnings, wages or by 2.5%.
This meant in April the state pension rose by 8.5%.
Both the Conservatives and Labour are committed to keeping the policy, designed to ensure pensions keep up with rising prices and wages.
But currently income tax thresholds have been frozen since 2021. Income tax is also paid on money received via pensions.
By 2027, the state pension is expected to be higher than the tax-free personal allowance according to independent fiscal watchdog Office for Budget Responsibility (OBR).
That would mean many millions more pensioners paying income tax, according to the Tories.
Charities have been reporting heightened concern among pensioners who fear being dragged into paying income tax.
Both Age UK and Independent Age saying they have seen an increase in calls to their helplines in recent weeks from pensioners confused about the issue.
Under the new scheme, the state pension will always be below the tax-free threshold.
The Conservatives claim the plans will cost £2.4bn a year by 2029-30, funded by the previously announced strategy to raise £6bn annually through improving tax collection and cracking down on tax avoidance and evasion.
Mr Sunak said: “I passionately believe that those who have worked hard all their lives should have peace of mind and security in retirement.
“Thanks to the Conservatives’ Triple Lock, pensions have risen by £900 this year and now we will cut their taxes by around £100 next year.
“This bold action demonstrates we are on the side of pensioners. The alternative is Labour dragging everyone in receipt of the full state pension into income tax for the first time in history.”
Labour shadow cabinet minister Jonathan Ashworth said Mr Sunak “is planning to reward Britain’s pensioners for their loyalty by stabbing them in the back, just like he did to Boris Johnson and just like he has done to his own MPs”.
“Not only have they promised to spend tens of billions of pounds since this campaign began, they also have a completely unfunded £46bn policy to scrap National Insurance that threatens the very basis of the state pension,” he said.
Chancellor Jeremy Hunt has previously described ending National Insurance as a “long-term ambition” but acknowledged that it would not happen before 2030.
Lib Dem Treasury spokeswoman Sarah Olney said: “The Conservative Party has hammered pensioners with years of unfair tax hikes and broken their word on the triple lock.
“People won’t be fooled by yet another empty promise from Rishi Sunak after this record of failure.”
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