Good news on state pensions proposal

warwicktiger

http://money.aol.co.uk/2012/03/08/tax-on-state-pensions-to-be-abolished/?icid=maing-grid7%7Cuk%7Cdl4%7Csec1_lnk3%26pLid%3D99625

jamesd

That's about a plan being considered to eliminate income tax on the state pensions. The maximum possible state pensions are £5,311 for basic and £7,857.20 (second number is from 2008-9) so it's potentially £13,000 or more with no tax to pay and the full personal allowance for other things. Most people won't have anything like £7,857 in additional state pension, though - half of that is more likely.

That doesn't look much like good news to me. No tax on the state pension for the better off pensioners while it won't help the badly off ones who already have incomes too low to pay income tax anyway. Better would be a higher age allowance to take more of the lower income ones out of tax that way without giving as much money to those who aren't close to being in difficulty.

Worth remembering here is that in 2008-9 the average pensioner couple had an income of £29,000 a year, which about that of a family with one person making the average wage, which has more tax to pay.

The interesting part of the problem is the bottom 20% of pensioners on less than £10,244 a year, though that's easily enough for many to live on and it's more like the bottom 10% in real trouble. If there are tax breaks around, that'd be a good place to direct them.

dunstonh

You should have added a question mark on the thread title.

At the moment, it is just an idea being floated. It may not be that popular either as it would allow higher earners to be better off than lower earners.

Velcro_Hotdog

I'm confused

SP is currently less than the personal allowance so doesn't that mean that SP is already tax free?

hugheskevi

SP is currently less than the personal allowance so doesn't that mean that SP is already tax free?

Basic State Pension is below the personal allowance, but total State Pension might be above it, for those with large amounts of Additional Pension.

It cannot be called tax free as there isn't any hypothecation of the tax allowance. I could have a private pension income of £8,000 and call it tax free just as it is below the personal allowance. State pension is taxable, and counts along with all other taxable income.

A policy of making State Pension non-taxable and reducing personal allowance would be extremely unfair to those who had contracted-out though...and the self-employed to a lesser extent.

notbritishgas

Velcro_Hotdog wrote: »

I'm confused

SP is currently less than the personal allowance so doesn't that mean that SP is already tax free?

Yes it is if that is your only income and is below your personal allowance , however if you have paid in to another pension all your working life and are now benefitting from a pension which is more than your personal allowance then tax is payable on the state pension via your other pension.

CLAPTON

basically a non story as there is no chance of this happening in the foreseeable future.

Zelazny

The thing that worries me is that if they were to do this, they'd then have a good argument for removing tax allowances for pensions contribution.

dunstonh

Zelazny wrote: »

The thing that worries me is that if they were to do this, they'd then have a good argument for removing tax allowances for pensions contribution.

Which would effectively turn pensions into ISAs.

There has been some talk and rumour (but that is all) that a replacement to ISA and pension is being considered. A single tax wrapper that caters for everything.