TAX ON FULL STATE PENSION APRIL 2027

MetaPhysical

Universidad said:

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.

Agreed.  However, the UK electorate have largely brought this on themselves, all of us, including me, ever since the Conservative "Labour Tax Bombshell" adverts in the 1990's election campaigns.  The public don't seem to want to hear honesty about tax and they punish honesty at the ballet box.  We want first rate public services but don't want to pay for them - or want someone else to pay for them, the "billionaires" as an oft-quoted example.   As a result, political parties just aren't honest with us and come out with slogans like "all of our plans are fully costed" and "we have no plans to increase taxes other than those outlined in our manifesto".  When they get in, they then complain about "black holes".  The Tories and Labour are equally responsible.

Someday some brave decisions are going to be needed and not just on the "wealthy"

af1963

Yep.  Calling things "political cowardice" is all very well, but politicians respond to the signals that voters give them through the ballot box, and voters have regularly shown that they prefer to vote for parties that lie to them about ( or deny the existence of)  difficult choices.

Alongside that, when policies create both winners and losers, the winners are much less vocal than the losers.  And it's easier to be blamed for an active change than for something that just happens gradually.

See the OAP Xmas bonus and the 25p over-80 addition to the state pension.  Value has been eroded but nobody dares to scrap them.
 

Triumph13

If the full state pension is to rise above the personal allowance - and there is no innate reason why it shouldn't - then they really need to bite the bullet and deduct that tax up front to avoid the issue of millions of pensioners with tiny tax bills.  It should be relatively simple to add an extra field to the DWP systems, to deduct 20% of the excess of state pension over PA, and make payments based on that amount instead.  It's also a minor change to HMRC systems to take account of the tax already 'paid' on the reported state pension number.

Of course, as it's govt IT systems we're talking about, it will probably take ten times longer than it should, so they may need to just write off all the tiny tax bills for a year or two.

kinger101

af1963 said:

Yep.  Calling things "political cowardice" is all very well, but politicians respond to the signals that voters give them through the ballot box, and voters have regularly shown that they prefer to vote for parties that lie to them about ( or deny the existence of)  difficult choices.

Alongside that, when policies create both winners and losers, the winners are much less vocal than the losers.  And it's easier to be blamed for an active change than for something that just happens gradually.

See the OAP Xmas bonus and the 25p over-80 addition to the state pension.  Value has been eroded but nobody dares to scrap them.
 

Elections happy once every five years.  Plenty of time to reform things.  The issue is usually within the party.  Despite having a massive majority, we've had several u turns already caused by backbenchers.  

ali_bear

af1963 said:

Yep.  Calling things "political cowardice" is all very well, but politicians respond to the signals that voters give them through the ballot box their rich donors, and voters have regularly shown that they prefer to vote for parties that lie to them about ( or deny the existence of)  difficult choices.
: 
: 

Fixed that for you 

MeteredOut

Triumph13 said:

If the full state pension is to rise above the personal allowance - and there is no innate reason why it shouldn't - then they really need to bite the bullet and deduct that tax up front to avoid the issue of millions of pensioners with tiny tax bills.  It should be relatively simple to add an extra field to the DWP systems, to deduct 20% of the excess of state pension over PA, and make payments based on that amount instead.  It's also a minor change to HMRC systems to take account of the tax already 'paid' on the reported state pension number.

Of course, as it's govt IT systems we're talking about, it will probably take ten times longer than it should, so they may need to just write off all the tiny tax bills for a year or two.

You are grossly underestimating the complexity in such a change, both for pension payments, and for HMRC.

For example, which PA do you deduct 20% over? Do you assume £12,570 (or whatever it happens to be that year) for everyone, or use the individual's own tax code? If the former, then its already wrong for a significant number of people (a quick google suggests 30-35% of those receiving state mention are not on the standard PA). If the latter, its already more complex. What about the 19% rate in Scotland? Wrong for those. What about those who's tax code change during the year due to them updating their interest/divident forecasts on their personal tax accounts? Wrong for those, so the calculation then needs to take into account what has already been tax - effectively building tax collection rules into the pensions payments system.

Universidad

af1963 said:

Calling things "political cowardice" is all very well, but politicians respond to the signals that voters give them through the ballot box 

I don't disagree. And it's ill-advised of me to call anything 'political cowardice', given the pension scheme I've identified myself as being in, but I don't see this as being a problem with any specific political party, as with the entire system. 

We could blame it on the voters, but in a representative democracy politicians are supposed to make informed decisions on their behalf. 

We could blame it on the media, who will crucify a government for making the right and necessary decisions, just because it sells more papers. 

We could blame foreign adveraries for interferring in the political life of the nation, in order to sow discontent and weaken us on the world stage.

These are all real things affecting our ability to make the right changes.

For me, there's a group of people who literally have making the right choices in their job description that I would put up top of that list. But I'll do it more advisedly in future.

QrizB

MeteredOut said:

Triumph13 said:

... to deduct 20% of the excess of state pension over PA, and make payments based on that amount instead.

For example, which PA do you deduct 20% over? Do you assume £12,570 (or whatever it happens to be that year) for everyone, or us the individual own tax code?

Putting on my 😈 head for a minute, you could "simply" reduce all pension payments by 20% and declare that the state pension is now tax-free. Anyone whose total income is now less than the Pension Credit threshold will be able to get topped back up.

Simples!

Grumpy_chap

QrizB said:

you could "simply" reduce all pension payments by 20% and declare that the state pension is now tax-free. 

Would that only be on SP, or on ALL pension payments?  
Would that then mean a flat rate income tax on all pension income, but with no personal allowance?

dunstonh

QrizB said:

MeteredOut said:

Triumph13 said:

... to deduct 20% of the excess of state pension over PA, and make payments based on that amount instead.

For example, which PA do you deduct 20% over? Do you assume £12,570 (or whatever it happens to be that year) for everyone, or us the individual own tax code?

Putting on my 😈 head for a minute, you could "simply" reduce all pension payments by 20% and declare that the state pension is now tax-free. Anyone whose total income is now less than the Pension Credit threshold will be able to get topped back up.

Simples!

What about those that are earning £20k a year on a state pension?