Private Pension

twoshoessuzie

Totally don't understand why I have to pay so much tax on a tiny annual pension?

Can someone explain how it all works when we get our pension rise in April 2027??

For 2027/28:

The figures are confirmed:

• New full State Pension from April 2027: £13,036.40 per year.
• Personal private pension: £265.39 per year.
• Combined annual income: £13,301.79.

2027/28 tax position

The new Pension Tax Allowance will apply automatically.

Using the official taper calculation when total income exceeds £13,037.

That means I will loses some of the new tax reduction as my private pension takes my income above that threshold.

Calculation	Amount
Normal tax on combined income	£146.36
Remaining Pension Tax Allowance	-£5.02
Total estimated tax	£141.34

This is why the figure is so much higher than £53.08. The taper effectively withdraws £88.26 of tax relief as well as the ordinary tax on her additional pension income.

If this is correct the £265.39 annual pension is reduced to £124.05 after tax.

Peter999_2

You get a tax free allowance of £12,570 a year. Anything above that you pay 20% tax.

Therefore, you get £731.79 above £12,750 and that is taxed at 20% making £146.36.

I'm not sure why you get the £5.02 taken off the £146.36.

Edit - Ah, the £5.02 is this new pension reduction allowance announced in the budget.

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/82186906#Comment_82186906

Think you've forgotten about the shiny new Pension Tax Allowance, set at the value of the new State Pension - £13,037 (rounded up from £13,036.40 because tax doesn't do pennies).

QrizB

Welcome to the forum!

Totally don't understand why I have to pay so much tax on a tiny annual pension?

Your calculations look to be correct. Which bit do you not understand?

twoshoessuzie

Thanks to you all.

• New full State Pension from April 2027: £13,036.40 per year.

I thought that you didnt pay any tax if that was your only pension?

jimjames

https://forums.moneysavingexpert.com/discussion/comment/82186988#Comment_82186988

You said it's not your only pension?

eskbanker

https://forums.moneysavingexpert.com/discussion/6688690/private-pension

If the new allowance wasn't present, the tax on that income would have been £146.36.

Because only a tiny sliver of the new allowance is available at that level of aggregate income, the tax will instead be £141.34.

So, a small win overall…

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6688690/private-pension

I don't think your calculation is quite right. As a new State Pensioner you will be under the rules where your taxable State Pension is 1 week of the old rate and 51 of the new rate, so £13,027 not £13036.40.

As such I think your Pension Tax Allowance reduction will be more like £9.

So with less taxable income in the first place and a slightly larger reduction I think you will have around £135 tax to pay.

That's assuming you haven't omitted any untaxed interest from your income figures.

twoshoessuzie

Thank you all.

The pension I get annually has always been £265.39 annual pension before tax.

So just to clarify if you are on just the government pension only you will still have some tax to pay on it now?

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82187010#Comment_82187010

Not sure quite what you mean by 'now' here, but the purpose of the new allowance from 2027/28 is to eliminate tax for those solely on the standard new state pension with no increments, and if you have other income then that concession is unwound via the taper mechanism.

twoshoessuzie

https://forums.moneysavingexpert.com/discussion/comment/82187036#Comment_82187036

Thank you, I now understand it fully, thank you to everyone who has taken the time reply.