State Pensions + Personal Tax Allowance

missile

Getting back on track, I agree with the spirit of OPs post.

The government encouraged us to save for an enhanced pension. It does seem unfair that personal allowance has not increased.

Albermarle

Blue_Parrot said:

Our state pensions will go up in April, BUT the personal tax allowance stays the same.

That means that there'll be more income for them to tax. (We are both retired, but both have to pay tax.)

Will we end up ahead, or stay the same? It seems to me that if we stay the same, we're going to end up worse off, because of cost rises elsewhere e.g., weekly shopping bill for instance.

You are only taxed extra on the increase, so you will be significantly better off.
Using figures approx akin to what seems to be your situation.
Your pension before the increase £14K - increase of £1.4K- tax to be paid on that increase £280. So net gain of approx £1.1K
His pension, £16K before the increase - increase of £1.6K - tax to be paid on that increase £320 - net gain approx £1.3K

It is notable that a >10% increase is rather good compared to the increases of people still working ( especially in the public sector) and they all pay tax and NI as well. So could be worse.....

Blue_Parrot

Many thanks for the helpful responses. Please don't ask me to feel sorry for people in the public sector who (the overwhelming majority) are on defined benefit pension schemes, usually based on salary at retirement - compared with those of us who had no such employer schemes and had to source, and pay into, themselves.

Anyway, I've now sat down with a spreadsheet and worked out that, yes, I will be slightly better off after the state pension increase + no increase in personal tax allowance.

My husband however, has a more complicated scenario. He's on a K code which, according to the latest notice from HMRC has increased from K343 to K503 (!). This means that because his state pension has gone up, they will take much more from his private pension monthly annuity amount. I have no idea what he'll end up with from there.

luvchocolate

The tax from the increase in state pension will be taken from his annuity 
If his state pension increases by lets say £20 a week..he will be better off by £16 ....his annuity will decrease by £4 a week. 

Albermarle

My husband however, has a more complicated scenario. He's on a K code which, according to the latest notice from HMRC has increased from K343 to K503 (!). This means that because his state pension has gone up, they will take much more from his private pension monthly annuity amount. I have no idea what he'll end up with from there. 

For every £10 extra state pension he gets, they will take £2 more in tax from his annuity, by adjusting his tax code, as the state pension is taxable but never taxed directly.

If his annuity also increases, then he will also pay £2 in tax for every £10 it increases.

Blue_Parrot

503 -343 = 160. Does this mean that the monthly annuity payment will decrease by £160/month?

Annuity payments never go up, it seems to me, unless or until the Annual Personal Allowance goes up.

p00hsticks

Blue_Parrot said:

503 -343 = 160. Does this mean that the monthly annuity payment will decrease by £160/month?

No, it means that they will pay tax on an extra £160 - so if they are basic rate taxpayers in England it should be around 20% or £32 less  

Blue_Parrot said:

Annuity payments never go up, it seems to me, unless or until the Annual Personal Allowance goes up.

At the risk of being accused of being pedantic, I expect you mean that the annual gross payment stays the same, but the net amount you receive after tax never goes up unless the allowance increases (and so less tax is deducted).
 
When setting it up an annuity you are usually given the option of either a payment that increased in line with some measure of inflation (CPI/RPI etc) each year, or an initially higher fixed amount that will never rise.

 It sounds like your husband went for the latter. 

MarzipanCrumble

missile said:

Geez there are some really pedant posters on here :-)

"Quite possible.  A friend's State pension is currently over £22K, due to high SERPS and 5 years deferral at over 10% per year. "
I sincerely hope they will live long enough to benefit from deferring their pension. 

I deferred for about 7 years (old state pension).  I enjoyed my work, interesting, desk work, not physicsl, part of a team.  I did this to absolutely abolish stress that I did not have enough income to follow my lifestyle.  Don't care if I die early the fact I worked beyond SP age designation (62) will be 'lost'.  I am very cushioned from this inflation and electriciy/gas rise.  No stress as I can afford it and not worry - worth working extra at a job I enjoyed and gave me intellectual stimulus.

dealyboy

Going back to @Blue_Parrot ...
Of course we are all going to be worse off due to inflation (I'm a new state pension OAP).

10.1% increase in pensions but 20% of increase taxed, so only 8% real increase. However our inflation rate is 16% plus, for essentials, so we are losing 8% purchasing power.

Albermarle

dealyboy said:

Going back to @Blue_Parrot ...
Of course we are all going to be worse off due to inflation (I'm a new state pension OAP).

10.1% increase in pensions but 20% of increase taxed, so only 8% real increase. However our inflation rate is 16% plus, for essentials, so we are losing 8% purchasing power.

Key word highlighted in bold, state pensioners have done better than most employees.
People with DC pension pots have seen actual drops in value of 8 to 20%, so taking inflation into account, a real drop in value of around 20 to 30 % . Not a direct comparison I know, but state pensioners and those with public sector pensions, have done better than most, despite the personal allowance tax freeze.