TAX ON FULL STATE PENSION APRIL 2027

LHW99

MeteredOut said:

LHW99 said:

MeteredOut said:

Triumph13 said:

MeteredOut said:

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.

That's why I said the PA not the tax code.  If you did try and bring in tax codes it would indeed be a huge change.  Instead you would continue to treat the state pension below PA as paid gross, exactly as it is now, with all remaining tax collected from other income sources.  The only change would be to collect tax on the portion of SP above the full PA via a reduction in the SP.

You are right, however, that Scotland majes it very slightly more complex.

That would still not be a "relatively simple change". They can't just take 20% off and not then build an integration from the payments system to the tax system in order to record that tax as having been paid. It would be a significant change.

Maybe they could integrate HMRC & DWP.....no more of one hand not knowing what the other is doing, a single working system, SP and other pensions dealt with in one place ........ what could possibly go wrong

Yes they could. But that would not be a "relatively simple change".

Didn't think it would be - or that a single system could be got working reliably in a suitable timescale - hence the emojis

SVaz

I wish the Govt. would say what the personal allowance will be come 2028.  It makes planning for UFPLS etc.  a guessing exercise. 

If it’s uprated by inflation will it be one year’s rate or all the years since it was frozen?  ( highly doubtful). 

It needs to be £15k at least.  

Aretnap

SVaz said:

I wish the Govt. would say what the personal allowance will be come 2028.  It makes planning for UFPLS etc.  a guessing exercise. 

If it’s uprated by inflation will it be one year’s rate or all the years since it was frozen?  ( highly doubtful).   

They have. The personal allowance is pegged to CPI unless there government passes legislation applying a different increase. The legislation freezing it applies until 2028, so under current plans it will increase by inflation from then. Very obviously this means increasing with CPI one year at a time, not a backdated increase covering the whole time it was frozen. 

Obviously like all tax rates this is subject to change - that's why we have an annual budget. If you are looking for a cast iron guarantee of what any particular tax rate is going to be in 2028, I'm afraid you are going to be disappointed. 

SVaz said:

It needs to be £15k at least.  

I think you'll find it doesn't "need" to be any particular number.

luvchocolate

Martin Lewis did say he expected it to be delayed until 2030.
None of us know what's going to happen..everything is so uncertain 

hugheskevi

A significant amount of the uncertainty is ironically caused by the commitment not to change any of the major taxes.

The more future certainty you provide as a Govt, the fewer options you leave yourself with to adjust as events happen and things inevitably don't develop as forecasted. Due to ruling out lots of possible big taxes rises, and ruling in expensive expenditure commitments such as Triple Lock, it has led to inevitable speculation about what multiple smaller increases could be made to fill the tax gap that would otherwise be likely to have led to one of the big taxes being increased slightly.

It would be nice if everything could simply be indexed to CPI by default, no promises made, and Govt do its job of making unfettered tax and spend decisions at each Budget - increasing taxes if necessary, reducing them if possible, and realigning things if the default CPI uprating has resulted in an undesirable outcome. Far too many areas are left with fiscal drag applied and then changed significantly when things eventually break, eg, tuition fees, rather than a stable predictable increase with occasional tweaks when needed.

MK62

hugheskevi said:

A significant amount of the uncertainty is ironically caused by the commitment not to change any of the major taxes.

The more future certainty you provide as a Govt, the fewer options you leave yourself with to adjust as events happen and things inevitably don't develop as forecasted. Due to ruling out lots of possible big taxes rises, and ruling in expensive expenditure commitments such as Triple Lock, it has led to inevitable speculation about what multiple smaller increases could be made to fill the tax gap that would otherwise be likely to have led to one of the big taxes being increased slightly.

It would be nice if everything could simply be indexed to CPI by default, no promises made, and Govt do its job of making unfettered tax and spend decisions at each Budget - increasing taxes if necessary, reducing them if possible, and realigning things if the default CPI uprating has resulted in an undesirable outcome. Far too many areas are left with fiscal drag applied and then changed significantly when things eventually break, eg, tuition fees, rather than a stable predictable increase with occasional tweaks when needed.

Hmmm......one issue with that is whether CPI is actually fit for purpose here. It's understandable to want a single measure of inflation, but if you look at the way CPI and CPIH are calculated, you have to ask whether either is actually representative of the cost of living changes faced by those at the bottom of the income scale.

If you look at the weightings in the "basket of goods" used to calculate CPI and CPIH, and then project that against the new state pension, you get some rather "odd" numbers.......CPIH, for example, suggests that a single person, living on the new state pension alone, is spending just £21 pw on food.......

Qyburn

Exodi said:

An example below. 

I wonder whether the guy who's "very close to giving up on the system" means he's going to stop claiming benefits. I'd guess not.

kinger101

hugheskevi said:

A significant amount of the uncertainty is ironically caused by the commitment not to change any of the major taxes.

The more future certainty you provide as a Govt, the fewer options you leave yourself with to adjust as events happen and things inevitably don't develop as forecasted. Due to ruling out lots of possible big taxes rises, and ruling in expensive expenditure commitments such as Triple Lock, it has led to inevitable speculation about what multiple smaller increases could be made to fill the tax gap that would otherwise be likely to have led to one of the big taxes being increased slightly.

It would be nice if everything could simply be indexed to CPI by default, no promises made, and Govt do its job of making unfettered tax and spend decisions at each Budget - increasing taxes if necessary, reducing them if possible, and realigning things if the default CPI uprating has resulted in an undesirable outcome. Far too many areas are left with fiscal drag applied and then changed significantly when things eventually break, eg, tuition fees, rather than a stable predictable increase with occasional tweaks when needed.

I never particularly understood the need to paint themselves into that corner given they were a cert to win.

Incredibly incompetent and an opportunity missed.

hugheskevi

MK62 said:

hugheskevi said:

A significant amount of the uncertainty is ironically caused by the commitment not to change any of the major taxes.

The more future certainty you provide as a Govt, the fewer options you leave yourself with to adjust as events happen and things inevitably don't develop as forecasted. Due to ruling out lots of possible big taxes rises, and ruling in expensive expenditure commitments such as Triple Lock, it has led to inevitable speculation about what multiple smaller increases could be made to fill the tax gap that would otherwise be likely to have led to one of the big taxes being increased slightly.

It would be nice if everything could simply be indexed to CPI by default, no promises made, and Govt do its job of making unfettered tax and spend decisions at each Budget - increasing taxes if necessary, reducing them if possible, and realigning things if the default CPI uprating has resulted in an undesirable outcome. Far too many areas are left with fiscal drag applied and then changed significantly when things eventually break, eg, tuition fees, rather than a stable predictable increase with occasional tweaks when needed.

Hmmm......one issue with that is whether CPI is actually fit for purpose here. It's understandable to want a single measure of inflation, but if you look at the way CPI and CPIH are calculated, you have to ask whether either is actually representative of the cost of living changes faced by those at the bottom of the income scale.

If you look at the weightings in the "basket of goods" used to calculate CPI and CPIH, and then project that against the new state pension, you get some rather "odd" numbers.......CPIH, for example, suggests that a single person, living on the new state pension alone, is spending just £21 pw on food.......

I agree - the key thing is that everything should escalate automatically, and periodically should be reviewed and reset to whatever the optimal amount is thought to be.

CPI is probably on the low side for everything to increase by, so periodic changes should be needed. Those should be planned and implemented gradually, with politicians doing their job of making appropriatete judgments and changes. Use of CPI gives some space for change rather than locking things to earnings, for example, but should be fine in the short and medium term.

Regulation and legislation should be dull things - extensive consultation, drafts, redrafts, long-lead in times, revisions based on experience, and then start the process over again. For pensions, major changes about every 20 years would be sensible for changes. Sadly, this is never a winner with the electorate, who dislike any technocratic government and instead prefer promises of quick and simple solutions, soundbites, and instant change.

Grumpy_chap

hugheskevi said:

It would be nice if everything could simply be indexed to CPI by default, no promises made, and Govt do its job of making unfettered tax and spend decisions at each Budget - increasing taxes if necessary, reducing them if possible, and realigning things if the default CPI uprating has resulted in an undesirable outcome. 

A bit like I suggested in this thread?

https://forums.moneysavingexpert.com/discussion/6624677/average-earnings-growth-and-triple-lock#latest

"There would be a great simplicity if everything was linked to earnings.

Average earnings = £x per week / month / year

Personal allowance = a% of £x

Higher rate starts at b% of £x

Additional rate starts at c% of £x

NMW = d% of £x

State pension = e% of £x

UC = f% of £x

And so on."

Obviously, you suggest using CPI instead of earnings as the basis.  Either could work very similarly.

We really need a simpler tax system with the cliff edges removed (as they drive illogical behaviours) and an end to parameters that initially seemed to affect only the "rich" but never changed so affect the more average person.