State pension and Saving starter rate

SloughSally

For every £1 state pension eventually goes over £12570 your starter savings rate (£5000) will reduce by £1 .
So in effect the extra 3 years of freezing personal allowance by Reeves and this shambles will end up making pensioners with very small savings and solely on state pension pay tax .
I hope Martin brings this up the next time he talks to Rachel from accounts

Dazed_and_C0nfused

SloughSally said:

For every £1 state pension eventually goes over £12570 your starter savings rate (£5000) will reduce by £1 .
So in effect the extra 3 years of freezing personal allowance by Reeves and this shambles will end up making pensioners with very small savings and solely on state pension pay tax .
I hope Martin brings this up the next time he talks to Rachel from accounts

It will almost certainly take a lot more than 3 years for State Pension to get to £17,570.

And they can still use the savings nil rate band (aka Personal Savings Allowance), another £1,000 taxed at 0%.

SloughSally

It only needs to go over £12570 for your saver rate to decrease £1 for £1 not reach £17570.
And she has frozen it until 2031 so 6 years not 3 years.

To put it simply for you and disregarding the £1000 nil band rate,  if their state pension   income goes to £14570, they will pay tax on an extra  £2000 of interest.

The bottom line is a lot of pensioners will be paying tax on their savings interest that they would otherwise not be because of the annual SP increase and her freezing PA until 2031 and no doubt longer , since they  promised in the manifesto to unfreeze it in 2028 and we all know now what that promises was worth..

friolento

As a tax paying pensioner, I don't really understand why pensioners should not pay tax / not have the same personal allowance as everyone else.

A working person with the same income as a pensioner pays not only their income tax but also National Insurance, which is used to fund the pensioner's state pension. The working person might also be the child or grandchild of the pensioner - so would the pensioner look their offspring in the eye and demand more money from them?

Everyone is subject to the fiscal drag that results from the continued freezing of the personal allowance. Giving pensioners special dispensation has the potential of creating more intergenerational conflict. Though apparently this is exactly what is being considered because pensioners go voting .......

unforeseen

A working person earning the equivalent of the state pension would also be eligible for a number of benefits, not all taxable. 

phlebas192

SloughSally said:

It only needs to go over £12570 for your saver rate to decrease £1 for £1 not reach £17570.
And she has frozen it until 2031 so 6 years not 3 years.

To put it simply for you and disregarding the £1000 nil band rate,  if their state pension   income goes to £14570, they will pay tax on an extra  £2000 of interest.

The bottom line is a lot of pensioners will be paying tax on their savings interest that they would otherwise not be because of the annual SP increase and her freezing PA until 2031 and no doubt longer , since they  promised in the manifesto to unfreeze it in 2028 and we all know now what that promises was worth..

Your initial post was referring to pensioners with "very small savings" paying tax on interest. Pensioners with very small savings don't earn £5k in interest. For pensioners who might have that much in savings, they can continue to put £20k a year into cash ISAs. The problem you are describing will only impact a small number of relatively well off people.

kimwp

phlebas192 said:

SloughSally said:

It only needs to go over £12570 for your saver rate to decrease £1 for £1 not reach £17570.
And she has frozen it until 2031 so 6 years not 3 years.

To put it simply for you and disregarding the £1000 nil band rate,  if their state pension   income goes to £14570, they will pay tax on an extra  £2000 of interest.

The bottom line is a lot of pensioners will be paying tax on their savings interest that they would otherwise not be because of the annual SP increase and her freezing PA until 2031 and no doubt longer , since they  promised in the manifesto to unfreeze it in 2028 and we all know now what that promises was worth..

Your initial post was referring to pensioners with "very small savings" paying tax on interest. Pensioners with very small savings don't earn £5k in interest. For pensioners who might have that much in savings, they can continue to put £20k a year into cash ISAs. The problem you are describing will only impact a small number of relatively well off people.

True - and there's the £1000 personal savings allowance as well - covers about £25,000 of savings cycled through the highest available regular savings accounts (from my last calc, may not be current)

BooJewels

I've been crunching some numbers since the budget, as I'm due to get my SP in about 18 months.  If you take the projected 2027 SP figure of £12,578, you'd have to earn £5,992 in non-ISA, non PB, taxable interest (balance of Starting Rate and PSA) before you paid any tax on the balance.   This would put your 'income' in the region of a minimum of £1,547 per month (might be more, with interest from non-taxable sources).

To generate this interest, if rates were averaging say 3% by then - you'd need to have £200,000 in taxable savings products (or £170k @ 3.5%, or £150k @ 4%, £300k @ 2% etc etc).  In which case, if you have that much capital (plus, if sensible, some more in non-taxable products), maybe you should be paying some tax - hardly a 'pensioner with very small savings'.

My thinking is, if I need to pay a bit of tax by then, I'd be very happy to be in receipt of enough interest to do so.  

Dazed_and_C0nfused

BooJewels said:

I've been crunching some numbers since the budget, as I'm due to get my SP in about 18 months.  If you take the projected 2027 SP figure of £12,578, you'd have to earn £5,992 in non-ISA, non PB, taxable interest (balance of Starting Rate and PSA) before you paid any tax on the balance.   This would put your 'income' in the region of a minimum of £1,547 per month (might be more, with interest from non-taxable sources).

To generate this interest, if rates were averaging say 3% by then - you'd need to have £200,000 in taxable savings products (or £170k @ 3.5%, or £150k @ 4%, £300k @ 2% etc etc).  In which case, if you have that much capital (plus, if sensible, some more in non-taxable products), maybe you should be paying some tax - hardly a 'pensioner with very small savings'.

My thinking is, if I need to pay a bit of tax by then, I'd be very happy to be in receipt of enough interest to do so.  

This all day long☝️

friolento

unforeseen said:

A working person earning the equivalent of the state pension would also be eligible for a number of benefits, not all taxable. 

So are many pensioners. Free NHS, NHS Low Income Scheme, free bus passes, housing benefit, council tax rebate, WFA, and perhaps even Pension Credit and its gateway benefits

Albermarle

SloughSally said:

For every £1 state pension eventually goes over £12570 your starter savings rate (£5000) will reduce by £1 .
So in effect the extra 3 years of freezing personal allowance by Reeves and this shambles will end up making pensioners with very small savings and solely on state pension pay tax .
I hope Martin brings this up the next time he talks to Rachel from accounts

In any case pensioners with 'very small savings' would be totally unaffected. In fact you would have to be sitting on bigger than a six figure sum + and any saved in Cash ISA's . So basically it is a non issue for the vast majority of pensioners.
Plus the ability to gain savings interest without paying tax is still a very generous system in the UK.
Things like cash ISA's, starter savings rate, personal savings allowance are just not available at all in most other countries.