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Penalising Savings

fortune87
Posts: 72 Forumite
could you please tell me the different ways in which the uk government penalise savings? I know they do on pension credit to an extent but was just wondering if there were any other ways?
thanks
thanks
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Comments
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anyone? help?0
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Why do you consider the government penalises someone with savings if they have pension credit?
If someone has more than £6000 savings then the state expects that person to use some of those savings to supplement their means-tested benefit. Pension Credit is a benefit for people who have - for whatever reason - not built up an adequate pension for themselves. That could be because they never earnt enough to be able to afford to put anything by for a pension. Or it could be because they p*ssed all their earnings up the wall. The reason for not having provided for yourself doesn't come into it.
There is no upper limit on the amount of savings you can have and claim pension credit. Although as the amount you are entitled to reduces by £1 for every £500 you have over £6000 there will obviously be a ceiling for every situation.
I'm not sure when the rules changed but in the early 90s if someone had £8000 savings they were not entitled to any means-tested state help. And if they had £3000 or more then any help they were entitled to was reduced by £1 for every £250 (up to £8000). For people under 60 they still have any means-tested benefit (income support, JSA or ESA) reduced by £1 for every £250 they have over £6000. And there is still an absolute limit of £16K (I think it's 16K).
The old name for pension credit: income support, and its predecessor, supplementary benefit, described the benefit very well. They "supplemented" or "supported" what other income or assets you have, to ensure a minimum amount necessary to live on.0 -
could you please tell me the different ways in which the uk government penalise savings? I know they do on pension credit to an extent but was just wondering if there were any other ways?
thanks
Its not a penalty. Its a means tested benefit to give the really poor a small increase to the level of the breadline. If you are above this with savings/investments then you are clearly not what the benefit has in mind.
In theory, you could have £1million in an investment bond and get paid tax credit. Pretty extreme example but technically possible.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
any other forms in which they may or may not penalise savings?0
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I'm taking by "penalise" you mean reduce the enjoyment you get from them. (Although don't forget that a pension credit claimant who has their potential £100 per week reduced to £99 per week because of their savings is still getting £99 a week more than they would were it not for the pension credit.)
There's income tax. If you have taxable income that is more than your personal allowance then you have to pay 20% of your interest in tax. That goes up to 40% for someone whose taxable income is over the higher rate threshold (I am not in that bracket myself so I don't know what that is).0 -
Its not a penalty. Its a means tested benefit to give the really poor a small increase to the level of the breadline. If you are above this with savings/investments then you are clearly not what the benefit has in mind.In theory, you could have £1million in an investment bond and get paid tax credit. Pretty extreme example but technically possible......under construction.... COVID is a [discontinued] scam0
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I believe the reason that pension credit now comes up in discussions is that the imputed return from capital over £6000 is 10% (a deliberately unrealistic imputation even back then) which gets clawed back at the rate of 40% (another bit of cheek from HMG - Income Support taxed at the top taxpayers rate) so that means you need a 4% 'net' return to having such capital or else you are actually 'better' off spending the capital. When they set up pension credit the intention was always that holders of capital - or pension source income from elsewhere, which isn't imputed - would never be worse off as a result. Logically, with some claimants palpably being made worse off by current low interest rates, they either have to have a re-think on that particualar rule or else resile from their own commitments. In the meantime there is a group of 'saver pensioners' on pension credit who are worried about whether to reduce their captial or not. Frank Field wouldn't approve of this - and for me that is the acid test of whether the policy is right or not......under construction.... COVID is a [discontinued] scam0
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any more forms of penalising (through taxation etc)??0
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Endowments are not included in any means test. In the past that used to be a real benefit to those that lost their jobs. Of course, there isnt many of those left now but it would be an irony if it turned out that having an endowment mortgage would have been better for a lot of people.any more forms of penalising (through taxation etc)??
There are way too many things and scenarios. You have income tax, capital gains tax, inheritance tax to name the three main personal ones. You then have around 13 investment tax wrappers which can be used to avoid/reduce tax liability. You also have personal allowances.
Unless you are planning to be poor in retirement (pension credit only takes a single person upto just under £7000 a year), then you shouldnt worry yourself on means tested allowances.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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