How does the State Pension Tax Work

JezR

A few years back HMRC estimated there to be around 30,000 people liable for income tax with just state pension as the only form of non-savings income. These people have to pay tax on their SP through self-assessment. There is another set where the income from other sources is insufficient to pay the total tax through PAYE, as this is capped at 50%. My father was in this category.

Silvertabby

Dazed_and_confused wrote: »

Not in all cases. There was a thread recently on the Cutting Tax board from someone who has a parent with unusually high State Pension which was over the Personal Allowance.

But this will obviously be less common going forward as more and more people get the new standard amount of £164.

Of course, thank you. I think that the highest possible State pension (old basic plus SERPS/SP2) is something like £15K - or more if the pensioner deferred payment. The future cap at £164 per week (£8.5K) is all part of the new pensions shake-up.

Have tweeked my post.

GunJack

What never ceases to amaze me, is that as people get older then their tax/income gets more onerous to keep on top of, while they are less willing/able to deal with the extra complications...e.g. going from one PAYE job to having income from 1, 2, or more pensions to then try and keep track of...

For example, I'll have employment income plus Civil Service pension income from 60 until I retire from current employment, when I'll get CS plus currently-accruing DB pension, and then state pension will kick in later....for many people I can see these sort of situations to be a right PITA to keep track of, even if it is just the tax aspect....

drumtochty

Dazed_and_confused wrote: »

But this will obviously be less common going forward as more and more people get the new standard amount of £164.

Disagree, it will last for 6 to 15 years unless my logic is wrong.



I have retired this tax year but my graduated pensions were worth less than £1 per week, therefore I will not consider them as part of SERPS SSP values.


SERPS and SSP was in place from April 1978 to April 2016.


Let's say most people got a few years of pension credits from 16 to 19 years of age for full time education.


Therefore people contracted out most of their life would get 35 years of SERPS and SSP that is 38 less 3 for education credits.



These people will get a handy state pensions if they were "contracted in" during the majority of their working life. That starts to reduce for those born from April 60 and for those with a DOB in the late 1960's the actual number of these SERPS and SSP years they earn reduce in number by a considerable amount.


Therefore, I believe these High State Pension pensioners will still be coming on the market for another 10 to 15 years or so.



Unless my logic is wrong.

Sea_Shell

Our plan is to pay the max we can into personal pension, then from age 55, once we are non-earners, withdraw the max we can without paying tax on the pension (so say £16,000, 25% of which is tax free, leaving £12,000 within PA). Move this money into an ISA, invested in similar funds to where it's been withdrawn from, so that when we do need it, we can draw out as much as we like tax-free.

We calculate that it will take each of us approx. 10 years to move all the money across at those figures. Once we have DB and SP in play, then we shall still just be under the PA.

Obviously, it won't work for everyone's situation....but we can't see any negatives for us.

swindiff

If you are non earners at that time and you plan on putting all of the money from your pension into an ISA over 10 years, what are you living on during that period?

lisyloo

invested in similar funds to where it's been withdrawn from, so that when we do need it

Investments are not suitable for money you need to withdraw.
You need to keep a % in cash so that you don't have to withdraw when the stock market is doing badly.

Sea_Shell

We'd live on a combination of cash and investments, depending on market conditions. We have an 8 year cash buffer currently.

badmemory

JezR wrote: »

A few years back HMRC estimated there to be around 30,000 people liable for income tax with just state pension as the only form of non-savings income. These people have to pay tax on their SP through self-assessment. There is another set where the income from other sources is insufficient to pay the total tax through PAYE, as this is capped at 50%. My father was in this category.

They have stopped this recently & now sent a tax bill (to be paid by the usual 31st Jan) based on the figures the DWP send to them. If anyone actually gets a correct bill based on HMRC actual rules congratulations. If you are still filing self assessment beware of accepting their pre-filled figures.

JezR

They have done this for some years simply because the large number of the people with near maximum state pensions have never had to make a tax return in their working life and aren't going to see the need to start making one when retired.