3.9% State pension increase means my NHS pension drops

Paul_Herring

comeandgo said:

The budget isn't past yet, due to brexit and other government problems it is due in March. The tax free allowances will be announced then.

We already know what they are (absent any last-minute changes, which I think would be unusual for this) for 2020/21 (£12,500, i.e. no change,) and already have an indication of further years (increase by CPI.)

casjen said:

The point is that the media headline is pensioners better off by 3.9% but the reality is that taking into account any private pensions means they drop because of increased tax .... so its not a 3.9% increase overall ..

For someone who is only on the state pension, it is a 3.9% increase overall.

Thrugelmir

casjen said:

The headline increase sounds great and also my NHS pension is due to rise by 1.7% so looking forward to a bit of extra money. But no because the tax free allowance isn't rising. Just received tax codes for new year and in fact despite the 1.7% NHS increase the actual  net amount is going down. Instead of £478 going to £486 , its down to £476. Whilst this may not mean much to many people it is to me . While its correct as per the way tax works it is a hidden decrease that a lot of people will be affected by and I think hasn't been thought out (or maybe it has! ) .

CPI in December fell to 1.4%. Seems as if 1.7% is a decent increase. 

xylophone

For those on old state pension, only the BSP rises by 3.9% - any ASP rises only by CPI last September (1.7%).
For those on new state pension,  any protected payment will likewise rise only by CPI.

LHW99

It works that way because the SP is conventionally paid without deduction of tax presumably so those with only SP coming in don't have to worry about filling forms. That means all the increased tax due from increases in (SP + Private pension) comes off the private one. If each pension was taxed proportionally you'd still pay the same amount, but the costs in time and administration would be much increased (so they might have to put the tax rate up just to cover it).

molerat

My late father in law always complained that they just decrease his tax code every time he gets an increase in his work pension so he is no better off

Triumph13

There are two, completely unrelated issues here.  One is that the State Pension is going up by more than inflation - Yippee!  The other is that the personal tax allowance isn't being increased so is effectively being decreased by inflation.  That would be cause for complaint  - where it not for the fact that is has been increased by significantly more than inflation in the last few years already.

molerat

But the reduction in net NHS pension has little to do with the tax allowance not increasing but more due to the state pension increasing and people need to understand the interaction between the state pension, their tax codes and their other pensions.

Triumph13

You got a 1.7% increase in your NHS pension and a 3.9% increase in your state pension.  Because the PA didn't increase (because it's just had some big increases) you only get to keep 80% of each of those increases.  That's all there is to it.  Nothing for anyone to get remotely upset about.

Because the State Pension is always paid gross, to make life easier for DWP, the 20% tax on the whole increase gets collected via the NHS pension.  In your case it appears that your state pension is quite a bit bigger than your NHS pension such that 20% of the SP rise (the SP tax collected via the NHS) is bigger than 80% of the NHS rise.  So although you get to keep 80% of both pay rises, the way it's administered means the cash from the NHS goes down (because the cash from the SP includes 100% of the SP rise not 80% of it) and that's causing you to throw your toys thoroughly out of the pram.

That's why people don't have sympathy - because there's nothing to be upset about.  You got rises in both pensions and because you are over the PA you only get to keep 80% of them  - just like every other taxpayer, pensioner or not, whenever they get a rise.

Marmaduke123

Your total income has gone up so your tax has gone up. All the tax is taken off your NHS pension as state pensions are paid without a deduction of tax. 

GibbsRule_No3.

We have a friend who keeps telling us her M&S pension has gone down now she has her State Pension. She fails to understand that it has only “gone down” because of the tax. She is convinced the SP now has part of her M&S pension.