State and private pensions have gone up, but I'm worse off

Marcon

mybestattempt said:

Pat13ricia said:

Hi, 
I have received my State Pension increase and my private pensions increase. I am now £24 worse off, every month.  I don't get the full State Pension, because of "contracting out". What is the point in working hard, making provisions for the future, to then find you are worse off???

This situation may have arisen because the annual increases in state pension and possibly private pension (both being paid in arrears) were not fully included in the payments received in April, the first month of the new tax year, but the tax code operated against the private pension has changed to reflect the full annual increase in state pension. 

So, although there has been an increase in pensions paid in April because of the new tax code more tax was deducted and this has resulted in a reduction in net income in April.

However, there should be an increase in net income in May when the new rates of both pensions are paid in full.

Ahhh.....I hear the sound of a nail being neatly smacked on the head! I do hope OP comes back to read this, which looks spot on.

Whatkindoflife

I understand where the initial poster is coming from because after the latest state pension increase, I too am £66 a month worse off.

The problem lies with Rachel Reeves rather cynical freeze on personal allowance for the next three years and some people can expect to become annually worse off until 2029.

In my case my state pension has increased by £11 a month which means it accounts for nearly all the £12,547 personal allowance and means that my two small private pension annuities now become eligible for a new BR tax code. This means they are now both subject to 20% tax which has deducted an additional £77 a month from one of them. So, increase of £11 in state pension results in £77 deduction elsewhere, ergo a £66 reduction.

I checked with HMRC and they say this will happen every month and admitted I will be worse off and there's nothing anyone can do about it. They have been inundated with queries on the subject. I asked if I could simply opt out of the £11 increase and go back to the previous arrangement and they didn't know. Really!

So much for the triple lock. By not allowing the personal income allowance to increase with inflation/CoL Reeves has created a situation where HMRC can skim a huge increase in tax revenues off the worst-off pensioners, while claiming they are 'putting pensions up'.

JoeCrystal

I am confused. How can you be extra £77 a month tax deduction with £11 a month increase? I assume you meant that your two small private pension annuities also went up? I am trying to understand this, so I wonder if you can show your taxable income in previous tax year and your expected taxable income in current year. And the amount of taxes you are expecting to pay. Unless you are expecting to get tax refunds eventually since you are overpaying in taxes right? Then you are not really worse off.

Frankly, everyone got to pay taxes one way or other.

eastcorkram

https://forums.moneysavingexpert.com/discussion/comment/81973591#Comment_81973591

That's a very small increase in your state pension. I think mine increased by £52.

Whatkindoflife

That's what I was complaining to HMRC about. State pension has risen £11 a month but the increase takes me upto my annual personal allowance and thus means one of my private pension annuities now is eligible for the BR code which is at 20% which is a deduction of £77 a month. So, I'm worse off. I'm trying to find a way of getting out of this because, as you point out, it's crazy. Maybe there is some tax efficient move I can make to mitigate it but the HMRC person I spoke to said they were being bombarded with the same query.

JoeCrystal

Then HMRC will reconcile your records and you may be able to reclaim overpaid taxes, so you are not really that worse off. What should happen is that you will eventually pay 20% tax on the taxable income above your personal allowance. If you are basic taxpayer. So really, you are still better off than last year overall once you get your tax refunds if relevant.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81973608#Comment_81973608

The full NSP increased by £11 per week, which is unlikely to be a coincidence if the poster says it's using up nearly all their personal allowance.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81973613#Comment_81973613

As above, the state pension increase is £11 per week, so that side of the equation appears wrong.

If you're paying an additional £77 per month in tax then that equates to £4,620 of annual income being newly taxed, which bears no relation to the increase in SP income, so something else is wrong. Have the other pensions increased too?

The previous iteration of this thread also touched on the one-off nature of April taxation, which may also be a factor here…

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81973591#Comment_81973591

The problem lies with Rachel Reeves rather cynical freeze on personal allowance for the next three years

The personal tax allowance was frozen in 2021, three years before the current Govt was elected.

State pension has risen £11 a month

Your latest payment may have only risen by £11 a month, but the state pension is paid in arrears so could well have included 3 weeks at the old rate. The actual increase is more as said in previous posts.

Whatkindoflife

I'm just going off what has been paid into my bank from DWP which rose from £921 a month in March to £932.05 in April. As you mentioned, there may be a one-off nature to this payment and SP payment could increase further in May, which would be nice. But I did speak to HMRC and they didn't remark on anything like this. It's confusing and worrying (and doesn't detract from the unfair freeze on personal allowance.)

I had one annuity that has had three tax code adjustments over the past year but the other stayed the same until now when it suddenly moved to the BR code because of the rise in SP.