Pensioner Taxation

Retired2015

Prior to taking my State Pension, I fully understood the tax rules which are currently:
Personal Allowance £12,570
20% tax above £12,570 up to £50,270
40% tax above........................£50,270 up to £125,140
All very straight forward if you have no major complications.

After taking the State Pension, things start to change quite dramatically, if you have a good private pension:
Personal Allowance (£12,570 minus your State Pension) (to ensure you pay Basic Rate Tax)
20% tax above (£12,570 up to £50,270 minus your State Pension) closing the gap to 40% tax
40% tax above........................(£50,270 minus your State Pension) up to £125,140
All very focused on taxing a greater proportion of private pensions at retirement!

Can anyone explain the rationale behind this please?
And when was this introduced?
To my mind, pensioners are being penalised unfairly.

Dazed_and_C0nfused

Retired2015 said:

Prior to taking my State Pension, I fully understood the tax rules which are currently:
Personal Allowance £12,570
20% tax above £12,570 up to £50,270
40% tax above........................£50,270 up to £125,140
All very straight forward if you have no major complications.

After taking the State Pension, things start to change quite dramatically, if you have a good private pension:
Personal Allowance (£12,570 minus your State Pension) (to ensure you pay Basic Rate Tax)
20% tax above (£12,570 up to £50,270 minus your State Pension) closing the gap to 40% tax
40% tax above........................(£50,270 minus your State Pension) up to £125,140
All very focused on taxing a greater proportion of private pensions at retirement!

Can anyone explain the rationale behind this please?
And when was this introduced?
To my mind, pensioners are being penalised unfairly.

Nothing has changed.

You appear to be overlooking the fact that,

A. State Pension is taxable
B.  DWP don't deduct tax from State Pension.

Could you give an example (using figures) where pensioners are being penalised 🤔

pterri

Unless I’m going insane I think you just get taxed as normal, that is on your total income including SP and any private pension. Except you don’t pay NI. Pensioners have less deductions, you don’t pay NI.

Ayr_Rage

Your state pension is paid without any deduction of tax, so that is used as the first part personal allowance.

You don't pay any more tax overall, it is just deducted from the private pension as that is the only income to which a tax code can be applied.

You are incorrect in thinking pensioners are being penalised.

Tucosalamanca

Also overlooking that a good private pension is tax advantageous.

You haven't mentioned the advantages while paying in or the 25% tax free on the way out...

Flugelhorn

Retired2015 said:

Prior to taking my State Pension, I fully understood the tax rules which are currently:
Personal Allowance £12,570
20% tax above £12,570 up to £50,270
40% tax above........................£50,270 up to £125,140
All very straight forward if you have no major complications.

After taking the State Pension, things start to change quite dramatically, if you have a good private pension:
Personal Allowance (£12,570 minus your State Pension) (to ensure you pay Basic Rate Tax)
20% tax above (£12,570 up to £50,270 minus your State Pension) closing the gap to 40% tax
40% tax above........................(£50,270 minus your State Pension) up to £125,140
All very focused on taxing a greater proportion of private pensions at retirement!

Can anyone explain the rationale behind this please?
And when was this introduced?
To my mind, pensioners are being penalised unfairly.

Yes - and?

My occuaptional pension is partly taxed at 40% - when I shortly get my state pension, even more of my other pension will get taxed at 40% - I will still be £120 a week better off

etienneg

People always seem to complicate things when they say a certain part of their income gets taxed at x%, or at a higher rate than if ...

Just consider total income. Then you see it's just progressive - the more you get, the more tax you pay. The first part is tax free, the next 20%, the next 40%, and so on. Whether its the personal pension or the state pension that gets taxed at 40% doesn't matter! (Unless, of course, you are deliberately looking to twist things in an attempt to make some unreasonable point.)

Pensioners are not "being penalised unfairly". A pensioner would pay exactly the same tax on this total income as would a younger person, but no NI. How is that unfair?

Tucosalamanca

Yes - and?

My occuaptional pension is partly taxed at 40% - when I shortly get my state pension, even more of my other pension will get taxed at 40% - I will still be £120 a week better off

Put it like that and it sounds like the tax system is working well.
It's effectively tapering payments made to higher earning pensioners, that seems reasonable to me.

Flugelhorn

Tucosalamanca said:

Yes - and?

My occuaptional pension is partly taxed at 40% - when I shortly get my state pension, even more of my other pension will get taxed at 40% - I will still be £120 a week better off

Put it like that and it sounds like the tax system is working well.
It's effectively tapering payments made to higher earning pensioners, that seems reasonable to me.

It is why I consider the state pension to be already means tested 

Retired2015

I have a total pension of £39,000 and part of my £39,000 is being taxed at 40%.
If you are under pension age you will not be taxed until you exceed £50,270.
Because I am a pensioner, I am now being taxed at 40% when I exceed £37,570 (£50,270-12,570)
That seems unfair to me.

horsewithnoname

Retired2015 said:

Prior to taking my State Pension, I fully understood the tax rules which are currently:
Personal Allowance £12,570
20% tax above £12,570 up to £50,270
40% tax above........................£50,270 up to £125,140
All very straight forward if you have no major complications.

After taking the State Pension, things start to change quite dramatically, if you have a good private pension:
Personal Allowance (£12,570 minus your State Pension) (to ensure you pay Basic Rate Tax)
20% tax above (£12,570 up to £50,270 minus your State Pension) closing the gap to 40% tax
40% tax above........................(£50,270 minus your State Pension) up to £125,140
All very focused on taxing a greater proportion of private pensions at retirement!

Can anyone explain the rationale behind this please?
And when was this introduced?
To my mind, pensioners are being penalised unfairly.

When it was introduced? I think PAYE was introduced to pay for the Napoleonic wars? State pensions were some time later, but it’s certainly been a fair old while.