Student loan 5 (from 2023) and repayments from pension income

agingstudent

The latest weekly MSE email includes this information:

Does savings, pensions or investment income count for loan repayments?Yes, but only if, in total, you have additional income of over £2,000 from savings interest, pensions or shares and dividends. If so, this will also be treated as part of your income for repayment purposes. You'll need to repay 9% of that too via self-assessment.

I have previously been advised by HMRC that student loan repayments are not taken from Pension income (even if greater than 25K p/a) unless a self-assessment tax return is needed/completed (and income is greater than 25K p/a).

The info in this week's email seems to contradict that - or is there a mistake in that text?

Can anyone help advise/confirm the situation and under what circumstances student loan repayments (under the scheme starter in autumn 2023) are made from pension income?

More_complicated_than_that

My guess at a quick answer is:

1. You will have to make repayments based on the whole of your pension income if it (and any other unearned income) is over £2,000.  So, £1,999 is ignored but if you get an extra £1 and you'll repay based on the full £2,000.

2. If you don't do self-assessment, you will have to pay the student loan company directly as they will automatically give you notice to repay at the earliest repayment date.

If I wanted a loan and didn't have a self-assessment obligation, I'd contact the SLC and ask them.

Saying all that...

I've looked at it for my PhD and decided not to take out a loan because I'd be paying a high rate of interest and having to repay the loan out of my pension. I do self-assessment.

I've looked at it for someone who had taken out a loan for a master's and they decided to repay it early to save interest because they expect to have more than £2,000 of unearned income each year.  They were within self-assessment.

Why is this a guess?

1. The regulations online are not up to date - https://www.legislation.gov.uk/uksi/2009/470/part/3/made 
2. I don't know the student loan company's practice

My guess is that regulation 15(2) means that the SLC will make a notification to the borrower that they have to repay (at the same time as they tell HMRC).  I don't know for sure though, it's just a guess as I've never had a loan.

Paragraph 29(4)(c) includes pensions income (and other unearned income) in a borrower’s total income unless all the unearned income is less than £2,000. 

The (original regs) suggest that a repayment is required whether or not there is employer / self-assessment obligation. 

agingstudent

Thanks for your explanation.

A conversation I had with HMRC recently about this led me to conclude that because pension income isn't subject to NI contributions/deductions, without a self-assessment return there is no mechanism for student loan repayments being taken from pension income. 

I wonder if it's the case that whilst the legislation around student loans has provision for taking repayments from pension income, there simply isn't the mechanism in place to do so (except via self assessment).

It's frustrating that neither the student loan people nor HMRC could provide definitive clarity - although perhaps it's because of this lack of a mechanism that they are vague.

agingstudent

I've just re-read your post…

"1. You will have to make repayments based on the whole of your pension income if it (and any other unearned income) is over £2,000.  So, £1,999 is ignored but if you get an extra £1 and you'll repay based on the full £2,000."

Do you mean to say that you think that the 25K p/an earnings after which repayments start relates just to earned income and not to unearned income? and that, for example, if the only income is, say, £10,000 from pension draw-down, repayments would be made/taken?

More_complicated_than_that

I've just had a look at this page (https://www.litrg.org.uk/tax-guides/students/student-loans) and the flowcharts explain what The Low Incomes Tax Reform Group seems to think the position is.   I've cut and pasted one of the flowcharts but there are others for Plan 4 and post-grad loans.

As I say, I don't know for sure what the right answer is (other than my £1,999 to £2,000 example should be £2,000 to £2,001).  But the flow chart seems to suggests that the £2,000 unearned limit figure is independent of the higher thresholds.  Without following through all the amendments to the regulations though, I wouldn't know if they are right.

They also suggest no amount is repaid if there is no employer and no self-assessment tax return.  That might be right, I just don't know.  But as I said, if I was in that position I'd contact the SLC to confirm.  If it is right, there must always be a risk that you'd have to do self-assessment (or the rules change) in the next 40+ years.

More_complicated_than_that

If you do want to check the regs, here's a list of the 36 SIs that you will have to look through: https://www.legislation.gov.uk/primary+secondary?title=Education (Student Loans) (Repayment) Regulations

agingstudent

Thanks very much.

I have spoken with the SLC - a couple of times. I came away with the distinct impression that neither person I spoke with had any idea what I was asking! I may try HMRC again to see if I can get a more concrete view from them.

I think the risk of a change to rules can't be avoided; I'm really just trying to have as much (ideally correct) information as I can so as to be able to make the most informed decision. It's frustrating that the documentation/FAQs don't make this clearer. I'm happy to accept that a need to move to self-assessment will almost certainly mean that my income will be sufficient that re-paying the loan (again) wouldn't bother me. 

Thanks again.