Early retirement and paying tax above LEL

singhini

If someone takes early retirement (say aged 57) and was to drawdown from their private pensions say £44,000; the first £11,000 is tax free with the remaining £33,000 taxed at 20% = £6,600

That £6,600 is above the Lower Earnings Limit (LEL), therefore would that count as 1 year towards the state pension (SP)?

molerat

No.  Pension income does not count. And the LEL has nothing to do with tax, it is based on earned income.

singhini

Ignore that. i just had a thought. if i work/self employed and say earnt £10,000 a year then i would still be earning above the LEL but paying no Income Tax or NI and YES this would count as a qualifying year.

Therefore why does it not count if i withdraw £10,000 from a private pension in the same manner as a qualifying year for SP (its certainly considered for tax in the same manner).

I could have £2,000 earnings from say self employment and take £10,000 from a private pension = £12,000 and that should count towards a qualifying year for SP? 

molerat

Pension income is not relevant income as simple as that coz the rules say so.

Marcon

singhini said:

Ignore that. i just had a thought. if i work/self employed and say earnt £10,000 a year then i would still be earning above the LEL but paying no Income Tax or NI and YES this would count as a qualifying year.

Therefore why does it not count if i withdraw £10,000 from a private pension in the same manner as a qualifying year for SP (its certainly considered for tax in the same manner).

I could have £2,000 earnings from say self employment and take £10,000 from a private pension = £12,000 and that should count towards a qualifying year for SP? 

Because there's no NI on pension income. Income tax - yes!

singhini

morerat
"Pension income is not relevant income as simple as that coz the rules say so."

Marcon
"Because there's no NI on pension income. Income tax - yes!"

But.... but.... but there is no Income Tax or NI on the first £12,570 either.

I think my point is; you don't have to pay NI to earn a qualifying year (i.e. earn £12,570 or as little as £6,500).
Yet HMRC are quite happy to regard pension money as earnings and tax it (without affording it the privilege of counting towards a qualifying year). 

HMRC shouldn't be allowed to have its cake (and everyone else's) 

I need to find things to complain to my MP about (its also not right that if you are claiming nJSA you can study local courses for free (in my case a did a 16 week Spanish class), however part way through the course my claim to nJSA came to an end and i was moved onto claiming just NI credits and was asked to either pay for the course or leave (apparently claiming just NI Credits doesn't count ----> why i asked ----> answer was don't know!

If the system has been taking £20,000 in Income Tax and £5,000 in NI each year from me -------> i want something back. 

We can't let them get away with this!!!

pterri

singhini said:

morerat
"Pension income is not relevant income as simple as that coz the rules say so."

Marcon
"Because there's no NI on pension income. Income tax - yes!"

But.... but.... but there is no Income Tax or NI on the first £12,570 either.

I think my point is; you don't have to pay NI to earn a qualifying year (i.e. earn £12,570 or as little as £6,500).
Yet HMRC are quite happy to regard pension money as earnings and tax it (without affording it the privilege of counting towards a qualifying year). 

HMRC shouldn't be allowed to have its cake (and everyone else's) 

I need to find things to complain to my MP about (its also not right that if you are claiming nJSA you can study local courses for free (in my case a did a 16 week Spanish class), however part way through the course my claim to nJSA came to an end and i was moved onto claiming just NI credits and was asked to either pay for the course or leave (apparently claiming just NI Credits doesn't count ----> why i asked ----> answer was don't know!

If the system has been taking £20,000 in Income Tax and £5,000 in NI each year from me -------> i want something back. 

We can't let them get away with this!!!

We all want something for nothing, sometimes you just need to pay your dues. There are more and more pensioners and fewer and fewer tax payers, something has to give. Most politicians accept but are terrified to say that the triple lock will need to come to an end soon, that will be an exciting conversation. 

QrizB

singhini said:

Yet HMRC are quite happy to regard pension money as earnings and tax it

No. HMRC treat pensions as income and tax it.

There are various types of income (earnings, pensions, lettings, interest etc.) and they have different tax treatments.

Sarahspangles

singhini said:

I need to find things to complain to my MP about

You know, we can suggest more interesting hobbies for retirees…

National Insurance contributions buy State Pension. We buy personal pensions from earned income and get tax relief when we make the contribution. So in a way, a personal pension is deferred salary. We then pay the tax due on it when we take it. 

hugheskevi

Sarahspangles said:

singhini said:

I need to find things to complain to my MP about

You know, we can suggest more interesting hobbies for retirees…

No! Think of the job creation - retirees write to their MP, their MP's office write to DWP, DWP correspondence team contact the relevant policy team, who contribute lines to take to a response, then it all goes back through the chain and a nice letter containing very bland standard lines that say nothing goes via the MP's office back to the retiree several weeks later.

Some Ministers might even look at correspondence going out in their name, but that would be unusual and unlikely to last very long.

It all makes Sir Humphrey proud.

bjorn_toby_wilde

pterri said:

singhini said:

morerat
"Pension income is not relevant income as simple as that coz the rules say so."

Marcon
"Because there's no NI on pension income. Income tax - yes!"

But.... but.... but there is no Income Tax or NI on the first £12,570 either.

I think my point is; you don't have to pay NI to earn a qualifying year (i.e. earn £12,570 or as little as £6,500).
Yet HMRC are quite happy to regard pension money as earnings and tax it (without affording it the privilege of counting towards a qualifying year). 

HMRC shouldn't be allowed to have its cake (and everyone else's) 

I need to find things to complain to my MP about (its also not right that if you are claiming nJSA you can study local courses for free (in my case a did a 16 week Spanish class), however part way through the course my claim to nJSA came to an end and i was moved onto claiming just NI credits and was asked to either pay for the course or leave (apparently claiming just NI Credits doesn't count ----> why i asked ----> answer was don't know!

If the system has been taking £20,000 in Income Tax and £5,000 in NI each year from me -------> i want something back. 

We can't let them get away with this!!!

We all want something for nothing, sometimes you just need to pay your dues. There are more and more pensioners and fewer and fewer tax payers, something has to give. Most politicians accept but are terrified to say that the triple lock will need to come to an end soon, that will be an exciting conversation. 

They’ve already partly fixed the problem of the triple lock by freezing the income tax thresholds.