Not a full state pension plus a private pension

rightfoot_shifter

My wife is turning 70 this year, she has a civil service pension but only a partial state pension because she refused to fund more into it when she finished in the civil service at age 40. So her total pension comes just above the current income tax threshold for paying tax. With the current government plans to ensure pensioners solely on full state pension never having to pay income tax, this has posed us a question of how the circumstances would affect my wife's tax liability in the coming years. 

At some point in the future her total pension before tax will likely be less than those on just the full state pension, yet is she still going to be liable to tax above the threshold? Can anyone suggest some options that would mitigate her taxation burden, once her total pension is less than those on just full state pension?

QrizB

rightfoot_shifter said:

My wife is turning 70 this year, she has a civil service pension but only a partial state pension because she refused to fund more into it when she finished in the civil service at age 40.

You just can't help some people, can you? My sympathies.

She might still have time to buy one or two back years, if you can persuade her?

rightfoot_shifter said:

With the current government plans to ensure pensioners solely on full state pension never having to pay income tax

That's possibly an over-optimistic interpretation of the Chancellor's announcement. We still don't know the details of how it will work.

rightfoot_shifter said:

At some point in the future her total pension before tax will likely be less than those on just the full state pension, yet is she still going to be liable to tax above the threshold?

Yes, that's how income tax works.

rightfoot_shifter said:

Can anyone suggest some options that would mitigate her taxation burden, once her total pension is less than those on just full state pension?

Until she reaches 75, she could pay £2880 into a personal pension each tax year and receive the £720 BR tax relief.

Once she's a taxpayer, she could make Gift Aid donations to charity.

Dazed_and_C0nfused

rightfoot_shifter said:

My wife is turning 70 this year, she has a civil service pension but only a partial state pension because she refused to fund more into it when she finished in the civil service at age 40. So her total pension comes just above the current income tax threshold for paying tax. With the current government plans to ensure pensioners solely on full state pension never having to pay income tax, this has posed us a question of how the circumstances would affect my wife's tax liability in the coming years. 

At some point in the future her total pension before tax will likely be less than those on just the full state pension, yet is she still going to be liable to tax above the threshold? Can anyone suggest some options that would mitigate her taxation burden, once her total pension is less than those on just full state pension?

Assuming you mean the announcement in the recent budget then based on what is currently known it is of no relevance to your wife.

She falls at the first hurdle or State Pension being her sole (taxable) income.

You could apply for Marriage Allowance and that would reduce her tax liability.  

Or until she's 75 she could contribute to a personal pension or SIPP.  That would have no impact whatsoever on the tax she pays but she would get up to £720 each year in pension tax relief, which she may find suitable mitigation.  It also gives a 6.25% benefit over putting money into an ISA.

Although it's late in the day wouldn't her best option be to buy some additional qualifying years for her State Pension?  Or is she too obsessed with not paying tax for that to be considered?

JoeCrystal

rightfoot_shifter said:

My wife is turning 70 this year, she has a civil service pension but only a partial state pension because she refused to fund more into it when she finished in the civil service at age 40.

Wow... can you please inform her a taxpayer's immense gratitudes for saving the Treasury a fortune in paying her state pension then (it is quite likely someone in her position could be a massive winner under state pension change to new version). Still, they have to pay her Civil Service pension, another unfunded cost to the Treasury still. On the other hand, maybe that is not a very good idea to inform that. 

She will be paying taxes like anyone else!

Vitor

Short answer: there is no special protection for people like OP's wife, and there is no obvious “fix”. The system works on taxable income and personal allowance, not on fairness relative to someone else’s pension mix. Just Make sure HMRC has the correct tax code and is not taxing too much via PAYE. This is common with mixed pension income.

- At some point in the future her total pension before tax will likely be less than those on just the full state pension, -

That makes an assumption about whether the triple-lock is maintained. The Civil Service pension goes up by CPI, which has often been lower than triple-lock increases, but the triple-lock may be broken.

molerat

There is the possibility, depending on pre / post April birthday, that she could get up to another 3 years of SP, that would be up to £19.74 per week for an outlay of £2769 which is the same as a 37% single lifetime increasing annuity - a bit better than the 5% you would get from an insurer !  Both myself and MrsM paid quite a few £K topping up and were in profit well before we reached 70.  As she was never going to be reliant on PC it was absolute madness not to top up, you can lead a horse to water as they say.

As to the original question, the answer is no one knows.  With the amount of back peddling that has gone on since the budget when it comes to implementing it I very much doubt that anyone earning the same as the SP amount will be treated any differently tax wise to someone with income just from the SP.  There are already those whose income is purely from the state pension and above the personal allowance.

DRS1

She could always start a petition asking for the personal allowance to be doubled for pensioners.

kermchem

Did the OP's wife really leave the civil service in about 1996 aged 40 and never again work in a job that resulted in NI being paid, or claim child benefit or care for a sick or disabled person and be enttled to HRP?

GunJack

Just seems like yet another "I don't want to pay any tax" thread....I don't get why people want to be poorer than they need to be.

Silvertabby

GunJack said:

Just seems like yet another "I don't want to pay any tax" thread....I don't get why people want to be poorer than they need to be.

They exist.  I have a friend in a very similar situation to me - a lot of contracted out service and enough time between 2016 and SPA to have been able to top up our State pensions to the full new single tier rate 

I happily paid my 4 years of voluntary Class 3s, and have now passed my 'break even' point.  But my friend refused on the grounds that 'she'd given the Government enough money, and wasn't going to give them a penny more than she had to'.

badmemory

I doubt very much that the only for state pension tax relief will actually go ahead.  After a few years it will end up with people with a small private pension & a state pension worse off than someone with only a state pension.  Not that I would place any bets on that.