New state pension not eligible for tax ??????

westv

I'm not sure why anybody would choose not to draw down from a SIPP just to save a few £s of tax on their SP.
I am also unsure why people are unsure what "income" will be. I thought it would be obvious 

michaels

westv said:

I'm not sure why anybody would choose not to draw down from a SIPP just to save a few £s of tax on their SP.
I am also unsure why people are unsure what "income" will be. I thought it would be obvious 

Alternatively do the maths and realise that those with a small sipp or DB might actually have to pay more tax than they received in their small pension, this becoming more likely as time goes on. Such is the madness of this Reeves announcement that is not actually in the budget.

DRS1

westv said:

I'm not sure why anybody would choose not to draw down from a SIPP just to save a few £s of tax on their SP.
I am also unsure why people are unsure what "income" will be. I thought it would be obvious 

Yes income is income but I suspect the thought process is does it have to be income subject to PAYE so that you can use the income to collect tax easily.  Rent interest and dividends are not subject to PAYE so would be no good as a collection system for tax due on the SP.

At some point surely the DWP has to operate PAYE on the SP?

Qyburn

DRS1 said:

Yes income is income but I suspect the thought process is does it have to be income subject to PAYE so that you can use the income to collect tax easily.  Rent interest and dividends are not subject to PAYE so would be no good as a collection system for tax due on the SP.

Income that in itself triggers the need for a Tax Return also makes it easy to add SP into the mix. From recollection that would include £1,000 or more Income from property, or from self employment.

hugheskevi

I think a factor in this that is not being discussed much is the interaction with Pension Credit.

In 2026/27 the new State Pension will be £241.30 p/w and the single person rate of Pension Credit will be £238.00 p/w. From 2027, pretty much all of the increase to new State Pension will be taxable for someone who only has full new State Pension as their income, whilst Pension Credit will remain untaxed.

Arguably a single person in receipt of Pension Credit (without premia) is already likely to be better off than a person in receipt of full new State Pension only due to passported benefits, and things like discounts from councils, businesses, etc, but very quickly it would be the case that the person with full new State Pension gets less cash (let alone passported benefits) after tax than the Pension Credit recipient. That brings back questions about 'Pays to Save' and means-tested benefits. Really, those have never gone away, with a focus on reducing Pension Credit recipients glossing over receipt of other means-tested benefits and in particular Housing Benefit.

So even if PAYE was operated on State Pension to solve the problem of Simple Assessment, that wouldn't solve the State Pension vs Pension Credit net income problem.

Not levying tax on the amount of income between the Personal Allowance and the rate of full new State Pension overcomes the problem of lower net income from State Pension than Pension Credit. But it comes at the cost of a growing amount of tax write-off, which over time exacerbates the question of fairness between recipients of State Pension only and those with State Pension and other income, especially those with small amounts of other income. That furthers the 'Pays to Save' issues.

Given Triple Lock is arguably unsustainable in the long-term, we now have another unstable medium to long-term feature. It will probably all get thrown at the Pension Commission to solve. This is all very undesirable given pensions should be boring and predictable, rather than introducing unsustainable features that result in guessing games about how long they will last, and how they will eventually be removed.

molerat

One thing's for sure, RR is limiting her future career opportunities, no one is going to employ her as a floor painter 

michaels

So my DW has a small LGPS DB pension entitlement.  I am thinking the win is to transfer this to a DC SIPP and then draw it down before she reaches SRA to avoid having any other income and making her state pension taxable.  Seems like this should not be too difficult as the value is under 30k (is it valued at 20x annual benefit?)

QrizB

michaels said:

 (is it valued at 20x annual benefit?)

No,.it isn't.

michaels

QrizB said:

michaels said:

 (is it valued at 20x annual benefit?)

No,.it isn't.

Thanks - so is there any 'rule of thumb' to give an approx CETV? 

Silvertabby

michaels said:

QrizB said:

michaels said:

 (is it valued at 20x annual benefit?)

No,.it isn't.

Thanks - so is there any 'rule of thumb' to give an approx CETV? 

Too many factors involved.  Are these benefits deferred, or is your wife still working/paying into the LGPS?  How old is she?