TAX ON FULL STATE PENSION APRIL 2027

Chickereeeee

There is enormous pressure to scrap the triple lock. However, scrapping the TL would lose the party who did it a LOT of pensioner votes. Taxing the latest, and future, rises reduces the cost of the TL without scrapping it.

hugheskevi

Silvertabby said:

Increasing the personal tax allowance (for State pensioners) so it is on a par with the single tier pension would seem to be the easiest and cheapest solution to this looming problem.  But I can't see Labour adopting a Tory manifesto pledge that they have already dismissed.    

For all pensioners? How do you justify a tax giveaway for a group already benefitting from Triple Lock, who get paid 58% of all benefits, and who are less likely to be in relative poverty (AHC) than Working Age or Children? Is that an effective use of tax-payer funding that the electorate will be happy to either increase borrowing or raise taxes to fund?

Or should it be tapered, as it was when a higher allowance for pensioners existed? If it should be tapered, where do we set the threshold? How do we avoid another Winter Fuel Payment debacle? How do we ensure there will not be an incentive-to-save problem caused by the taper in conjunction with other means-tested benefits? 

Then there is the question of how do we avoid a perpetual commitment to escalate the tax free amount for pensioners, not just by inflation but by a figure above both earnings and inflation? That is extremely difficult when freezing it for everyone else - especially for a government committed to helping workers. 

As soon as you give anything to anyone, it is inevitable other interest groups will point and demand to know why they were not preferred, and clearly if there is money for the other group there must be money available, so can't we just spend on X, Y and Z too? 

How would Rachel Reeves defend an ever-increasing gap between the tax threshold applied to pensioners, 75% of whom own their own home and so have considerably less demands on their funds than working age people servicing mortgages, rent, and bringing up children? It is easy to give things away to pensioners, but extremely difficult to ever take them away (Winter Fuel Payment...)

So politically, it would present some very difficult challenges. At the moment just about every decision is criticised - pensioners don't seem to be too thankful to politicians for their generosity in directing tax payers funds in their direction, so probably the best that could be hoped is a 'least you could do' response from pensioners, and criticism from non-pensioners. This knee-jerk criticism response to any change is good at leading to inertia when there is a big publicity and lobbying penalty to be paid for even mildly controversial changes.

I do think people overestimate the costs of administration. For example, DWP spends £288bn on benefits, and 4.5bn on staff (and a further £3.2bn on goods and services). That is despite maintaining the expensive Job Centre network and associated claimant contact. Slightly increasing an existing system will cost far less in the short and even medium term than enacting new laws and programming new systems. 

Although there is a very big question about compliance - it is one thing to expand the existing system, but quite another to actually enforce non-compliance. It is not cost effective to pursue small amounts, and HMRC dragging Mrs Miggins to court, who is surviving on only her State Pension and didn't realise she would have an end of year tax bill, will never give good headlines. Also, although the tax bills are small, they will increase significantly each year with the Personal Allowance frozen. That is a presentational nightmare, if it gets to some low income pensioners being presented with an ever growing tax bill at the end of the year. So probably enforcement would be deliberately lax, but that brings about its own fairness issues when you have honest individuals scrimping and saving whilst the dishonest are let off without penalty.

My bet would be on inaction until that becomes an untenable position, due to lobbying and/or adverse publicity. And at that point apply PAYE to State Pension.

Silvertabby

hugheskevi said:

Silvertabby said:

Increasing the personal tax allowance (for State pensioners) so it is on a par with the single tier pension would seem to be the easiest and cheapest solution to this looming problem.  But I can't see Labour adopting a Tory manifesto pledge that they have already dismissed.    

For all pensioners? How do you justify a tax giveaway for a group already benefitting from Triple Lock, who get paid 58% of all benefits, and who are less likely to be in relative poverty (AHC) than Working Age or Children? Is that an effective use of tax-payer funding that the electorate will be happy to either increase borrowing or raise taxes to fund?

Or should it be tapered, as it was when a higher allowance for pensioners existed? If it should be tapered, where do we set the threshold? How do we avoid another Winter Fuel Payment debacle? How do we ensure there will not be an incentive-to-save problem caused by the taper in conjunction with other means-tested benefits? 

Then there is the question of how do we avoid a perpetual commitment to escalate the tax free amount for pensioners, not just by inflation but by a figure above both earnings and inflation? That is extremely difficult when freezing it for everyone else - especially for a government committed to helping workers. 

As soon as you give anything to anyone, it is inevitable other interest groups will point and demand to know why they were not preferred, and clearly if there is money for the other group there must be money available, so can't we just spend on X, Y and Z too? 

How would Rachel Reeves defend an ever-increasing gap between the tax threshold applied to pensioners, 75% of whom own their own home and so have considerably less demands on their funds than working age people servicing mortgages, rent, and bringing up children? It is easy to give things away to pensioners, but extremely difficult to ever take them away (Winter Fuel Payment...)

So politically, it would present some very difficult challenges. At the moment just about every decision is criticised - pensioners don't seem to be too thankful to politicians for their generosity in directing tax payers funds in their direction, so probably the best that could be hoped is a 'least you could do' response from pensioners, and criticism from non-pensioners. This knee-jerk criticism response to any change is good at leading to inertia when there is a big publicity and lobbying penalty to be paid for even mildly controversial changes.

I do think people overestimate the costs of administration. For example, DWP spends £288bn on benefits, and 4.5bn on staff (and a further £3.2bn on goods and services). That is despite maintaining the expensive Job Centre network and associated claimant contact. Slightly increasing an existing system will cost far less in the short and even medium term than enacting new laws and programming new systems. 

Although there is a very big question about compliance - it is one thing to expand the existing system, but quite another to actually enforce non-compliance. It is not cost effective to pursue small amounts, and HMRC dragging Mrs Miggins to court, who is surviving on only her State Pension and didn't realise she would have an end of year tax bill, will never give good headlines. Also, although the tax bills are small, they will increase significantly each year with the Personal Allowance frozen. That is a presentational nightmare, if it gets to some low income pensioners being presented with an ever growing tax bill at the end of the year. So probably enforcement would be deliberately lax, but that brings about its own fairness issues when you have honest individuals scrimping and saving whilst the dishonest are let off without penalty.

My bet would be on inaction until that becomes an untenable position, due to lobbying and/or adverse publicity. And at that point apply PAYE to State Pension.

I hear what you say, but applying a taper or means test would be more complicated, and more complicated = more expensive.

Increasing the personal tax allowance for all those over SPA to, say, £13K would remove the spectre of paying tax for those on just the new single tier pension for the next few years.  After that, I strongly suspect that the Triple Lock will have to be watered down somewhat, on affordability grounds (yes, I'm a State pensioner - who has repaid 20% of my State pension in tax from day 1).  

Also need to factor in that while the State benefits given to the poorest working families are mostly tax exempt, the State pension is taxable income.

kinger101

hugheskevi said:

Silvertabby said:

Increasing the personal tax allowance (for State pensioners) so it is on a par with the single tier pension would seem to be the easiest and cheapest solution to this looming problem.  But I can't see Labour adopting a Tory manifesto pledge that they have already dismissed.    

For all pensioners? How do you justify a tax giveaway for a group already benefitting from Triple Lock, who get paid 58% of all benefits, and who are less likely to be in relative poverty (AHC) than Working Age or Children? Is that an effective use of tax-payer funding that the electorate will be happy to either increase borrowing or raise taxes to fund?

Or should it be tapered, as it was when a higher allowance for pensioners existed? If it should be tapered, where do we set the threshold? How do we avoid another Winter Fuel Payment debacle? How do we ensure there will not be an incentive-to-save problem caused by the taper in conjunction with other means-tested benefits? 

Then there is the question of how do we avoid a perpetual commitment to escalate the tax free amount for pensioners, not just by inflation but by a figure above both earnings and inflation? That is extremely difficult when freezing it for everyone else - especially for a government committed to helping workers. 

As soon as you give anything to anyone, it is inevitable other interest groups will point and demand to know why they were not preferred, and clearly if there is money for the other group there must be money available, so can't we just spend on X, Y and Z too? 

How would Rachel Reeves defend an ever-increasing gap between the tax threshold applied to pensioners, 75% of whom own their own home and so have considerably less demands on their funds than working age people servicing mortgages, rent, and bringing up children? It is easy to give things away to pensioners, but extremely difficult to ever take them away (Winter Fuel Payment...)

So politically, it would present some very difficult challenges. At the moment just about every decision is criticised - pensioners don't seem to be too thankful to politicians for their generosity in directing tax payers funds in their direction, so probably the best that could be hoped is a 'least you could do' response from pensioners, and criticism from non-pensioners. This knee-jerk criticism response to any change is good at leading to inertia when there is a big publicity and lobbying penalty to be paid for even mildly controversial changes.

I do think people overestimate the costs of administration. For example, DWP spends £288bn on benefits, and 4.5bn on staff (and a further £3.2bn on goods and services). That is despite maintaining the expensive Job Centre network and associated claimant contact. Slightly increasing an existing system will cost far less in the short and even medium term than enacting new laws and programming new systems. 

Although there is a very big question about compliance - it is one thing to expand the existing system, but quite another to actually enforce non-compliance. It is not cost effective to pursue small amounts, and HMRC dragging Mrs Miggins to court, who is surviving on only her State Pension and didn't realise she would have an end of year tax bill, will never give good headlines. Also, although the tax bills are small, they will increase significantly each year with the Personal Allowance frozen. That is a presentational nightmare, if it gets to some low income pensioners being presented with an ever growing tax bill at the end of the year. So probably enforcement would be deliberately lax, but that brings about its own fairness issues when you have honest individuals scrimping and saving whilst the dishonest are let off without penalty.

My bet would be on inaction until that becomes an untenable position, due to lobbying and/or adverse publicity. And at that point apply PAYE to State Pension.

Short answer is remove the triple lock.  

ClashCityRocker1

Fix threshold at level of flat rate (new state) pension for everybody

Reduce NI for working folk

Increase basic rate tax so above threshold everybody is paying more including pensionares

Still whinging 

Grumpy_chap

hugheskevi said:

For all pensioners? How do you justify a tax giveaway for a group already benefitting from Triple Lock, who get paid 58% of all benefits, and who are less likely to be in relative poverty (AHC) than Working Age or Children? Is that an effective use of tax-payer funding that the electorate will be happy to either increase borrowing or raise taxes to fund?

Yes.  Because that group of the electorate all go out to vote.  Propensity to vote is lower among younger age profiles.

hugheskevi

Silvertabby said:

hugheskevi said:

Silvertabby said:

Increasing the personal tax allowance (for State pensioners) so it is on a par with the single tier pension would seem to be the easiest and cheapest solution to this looming problem.  But I can't see Labour adopting a Tory manifesto pledge that they have already dismissed.    

For all pensioners? How do you justify a tax giveaway for a group already benefitting from Triple Lock, who get paid 58% of all benefits, and who are less likely to be in relative poverty (AHC) than Working Age or Children? Is that an effective use of tax-payer funding that the electorate will be happy to either increase borrowing or raise taxes to fund?

Or should it be tapered, as it was when a higher allowance for pensioners existed? If it should be tapered, where do we set the threshold? How do we avoid another Winter Fuel Payment debacle? How do we ensure there will not be an incentive-to-save problem caused by the taper in conjunction with other means-tested benefits? 

Then there is the question of how do we avoid a perpetual commitment to escalate the tax free amount for pensioners, not just by inflation but by a figure above both earnings and inflation? That is extremely difficult when freezing it for everyone else - especially for a government committed to helping workers. 

As soon as you give anything to anyone, it is inevitable other interest groups will point and demand to know why they were not preferred, and clearly if there is money for the other group there must be money available, so can't we just spend on X, Y and Z too? 

How would Rachel Reeves defend an ever-increasing gap between the tax threshold applied to pensioners, 75% of whom own their own home and so have considerably less demands on their funds than working age people servicing mortgages, rent, and bringing up children? It is easy to give things away to pensioners, but extremely difficult to ever take them away (Winter Fuel Payment...)

So politically, it would present some very difficult challenges. At the moment just about every decision is criticised - pensioners don't seem to be too thankful to politicians for their generosity in directing tax payers funds in their direction, so probably the best that could be hoped is a 'least you could do' response from pensioners, and criticism from non-pensioners. This knee-jerk criticism response to any change is good at leading to inertia when there is a big publicity and lobbying penalty to be paid for even mildly controversial changes.

I do think people overestimate the costs of administration. For example, DWP spends £288bn on benefits, and 4.5bn on staff (and a further £3.2bn on goods and services). That is despite maintaining the expensive Job Centre network and associated claimant contact. Slightly increasing an existing system will cost far less in the short and even medium term than enacting new laws and programming new systems. 

Although there is a very big question about compliance - it is one thing to expand the existing system, but quite another to actually enforce non-compliance. It is not cost effective to pursue small amounts, and HMRC dragging Mrs Miggins to court, who is surviving on only her State Pension and didn't realise she would have an end of year tax bill, will never give good headlines. Also, although the tax bills are small, they will increase significantly each year with the Personal Allowance frozen. That is a presentational nightmare, if it gets to some low income pensioners being presented with an ever growing tax bill at the end of the year. So probably enforcement would be deliberately lax, but that brings about its own fairness issues when you have honest individuals scrimping and saving whilst the dishonest are let off without penalty.

My bet would be on inaction until that becomes an untenable position, due to lobbying and/or adverse publicity. And at that point apply PAYE to State Pension.

I hear what you say, but applying a taper or means test would be more complicated, and more complicated = more expensive.

Increasing the personal tax allowance for all those over SPA to, say, £13K would remove the spectre of paying tax for those on just the new single tier pension for the next few years.  After that, I strongly suspect that the Triple Lock will have to be watered down somewhat, on affordability grounds (yes, I'm a State pensioner - who has repaid 20% of my State pension in tax from day 1).  

Also need to factor in that while the State benefits given to the poorest working families are mostly tax exempt, the State pension is taxable income.

£13,000 would cover an increase of up to 3.6% in April 2027. If Triple Lock results in higher than 3.6% uprating for April 2027 then a further hike would be needed at next year's Budget. With Triple Lock pledged to remain this Parliament, there would probably have to be further hikes in April 2028 and April 2029.

Even in the scenario where the Personal Allowance is indexed by CPI from April 2028 and Triple Lock reduced to plain earnings uprating from 2030, there would still be increases to the pensioner Personal Allowance needed in most years, with an ever-increasing gap.

I think it is the sort of policy you enact when you know you are not going to win the next election and it will be someone else's problem to sort out in the future, not something you do in the first year or two after winning an election.

Hopefully the Pension Commission will view the State Pension as being within its terms of reference, and that will be the basis for a move to a more stable tax and benefit arrangement for pensioners.

Auti

I believe everyone should pay tax equally - the rules should apply to everyone as we all are part of society and need each other to keep society going. Workers keep us safe and supplied both private and public (teaching next generation etc). Some pensioners provide childcare so workers can work or fulfil voluntary roles to support and supplement needs that cannot be financed and in my pensioner role I am a special guardian raising a child using my pension to do so and I am paying a small amount of tax. Life is frugal but we are happy and budget to make money go as far as possible - we have a simple life but it is good and respectful.

Stubod

..just set the tax free allowance to match the new basic state pension, scrap the triple lock, increase income tax 1%, increase the savings allowance before tax from 1k to (say) 5k and scrap / limit the amount you can have in ISAS???

Universidad

hugheskevi said:

If Triple Lock results in higher than 3.6% uprating for April 2027 then a further hike would be needed at next year's Budget. With Triple Lock pledged to remain this Parliament, there would probably have to be further hikes in April 2028 and April 2029.

I think removing the personal allowance would be pretty unthinkable in the current economic climate, even though it's the source of a lot of problems that other nations don't have. 

But if we're committed to the principle of a personal allowance, it probably *should* be uprated regularly.

Allowing it to erode over time - along with the rest of our tax thresholds - is the action of a government that needs to make a certain change, but can't be seen to make that change. It's political cowardice, whether we deem it necessary or unnecessary.

The personal allowance hitting the state pension isn't a unique problem, it's just a politically inconvenient roadblock in the path of letting controlled inaction be the modus operandi of tax policy.