Tax Misery for State Pensioners

agal

EdInvestor wrote: »

Perhaps there should be an increased personal allowance between the basic personal and the age allowance which allows tax free income up to the pension credit level for anyone retired between 60 and 64, male or female.

That would mean we had

Basic personal allowance 5435
Enhanced basic (60-64) 6450 ( pension credit: 124.05 x 52)
Age allowance (65+) 9030

At least people might see it as more fair.

Except for another group of pensioners who have just seen their tax rate double - those who have taken early retirement due to ill-health. In some cases they will have decades before they see an increase in their personal allowances.

Mikeyorks

Jennifer_Jane wrote: »

Thanks, Jem16, but how much state pension will they assume I'm on - or won't that matter?

At the moment I have about 15 years payments but am deferring Basic State Pension till I stop work to boost up the income.

As Jem said earlier .... it matters. As HMRC will restrict your Code in order to recover tax due on the untaxed State Pension. They're prompted by DWP .... and will send you a P161 a few weeks before the 'start date' of your Pension.

When you get the P2 (Coding notice) .... check it carefully with the initial payment statement you will get from DWP. As HMRC tend to 'code out' by assuming pension payments from the 'start date'. Which is inevitably incorrect .... and particularly so if you choose to be paid 4 weekly or 13 weekly. As they should only code out based on 'payment dates' ..... but tend to do so right from the start date. Not a huge deal ..... but can add several £hundred to the amount coded out so that's an extra £20 tax / hundred that's better in your pocket.

If you're deferring the State Pension ..... the tax on the lump sum created (assuming you're choosing that?) is a bit curious. It's taxable .... but only at the marginal rate existing when you end the deferment. Which actually gives you some potential (but reduced since the 10% tax band disappeared) to do a bit of legal manipulation to your advantage. Very much depends on your income at the time, but worth bearing it in mind? Some links in this thread :

http://forums.moneysavingexpert.com/showthread.html?t=792719&highlight=deferred

EdInvestor

agal wrote: »

Except for another group of pensioners who have just seen their tax rate double - those who have taken early retirement due to ill-health. In some cases they will have decades before they see an increase in their personal allowances.

It would be useful to see a list of the different groups who lose out under the tax change which seems to affect people who have income under 18,500

.So far it seems to be

# Male early retirees <age 65
#Female retirees <65
#Ill health early retirees <65

#Working singles/couples with no children who can't claim tax credits

Who else?

EdInvestor

Hi Terry

terryw wrote: »

A I don't know why Pension Credit kicks in at age 60. It seems daft to me. Strongly suggest that this is to do with government attempts to reduce the working labour-force.

Yes, you could be right: the unemployment figures are always politically so important.The numbers on incapacity benefit are also high for the same reason.This goes back to the Thatcher years and the clusure of the industrial cities in the north, which put many men out of work with no hope of ever getting another job.

D. Thanks for mentioning my case. I have five years to go before reaching 60.

I guess, then, that currently you should be comparing yourself with someone on job seekers allowance, not on pension credit?

I will then receive aprox £120 per week for the wife and myself.

This seems low, do you have no SERPS/S2P entitlement? The full basic plus 60% spouse entitlement now is around 160 pounds a week.

Nomad25

Well that's me well and truly shafted, I fit into two of Ed's categories.

Chesnut1

OK now I am confused? can anyone help? My mum is 62 she when she turned 60 she recieved a basic state pension of about £64 a week and the rest is topped up by pension credit. At present she recieves £121.00 per week and gets housing benefit. Should she be paying tax and if so should it be back dated? as no forms ever came to me regarding this ( I handle all her paperwork)

She has no savings and the last 20 yrs or so before she retired she got income support as she was sole carer for a disabled family member so could not accrue anything. All advice appreciated.

krisskross

Chesnut1 wrote: »

OK now I am confused? can anyone help? My mum is 62 she when she turned 60 she recieved a basic state pension of about £64 a week and the rest is topped up by pension credit. At present she recieves £121.00 per week and gets housing benefit. Should she be paying tax and if so should it be back dated? as no forms ever came to me regarding this ( I handle all her paperwork)

She has no savings and the last 20 yrs or so before she retired she got income support as she was sole carer for a disabled family member so could not accrue anything. All advice appreciated.

Don't worry, she will have no tax liability as a goodly part of her income is benefits (pension credit) which is not counted for tax purposes. She is not even using all her personal allowance.

terryw

EdInvestor wrote: »

Hi Terry



Yes, you could be right: the unemployment figures are always politically so important.The numbers on incapacity benefit are also high for the same reason.This goes back to the Thatcher years and the clusure of the industrial cities in the north, which put many men out of work with no hope of ever getting another job.



I guess, then, that currently you should be comparing yourself with someone on job seekers allowance, not on pension credit?



This seems low, do you have no SERPS/S2P entitlement? The full basic plus 60% spouse entitlement now is around 160 pounds a week.

Regarding your point that I should be comparing myself on JSA rather than Pension Credit, I think that this is the crux of the problem. At age 60 Pension Credit kicks in for both men and women. So someone on JSA at age 59 automatically gets a big increase on their 60th birthday assuming they have no savings or private pension. In fact, many people stop work at 60 as this makes financial sense Do the sums and you will see what I mean.

Thanks for letting me know that the basic retirement pension for husband and wife is £160 week....this is something to look forward to in five years.

Ed, I am not really grumbling about my lot in life, merely using my own case (and that of many many others) as an example of how the government penalises those who try to save for their old age. I am concerned about the future and I would like to see government policy which ensured that personal responsibility was encouraged.

terryw

margaretclare

Ed, I am not really grumbling about my lot in life, merely using my own case (and that of many many others) as an example of how the government penalises those who try to save for their old age. I am concerned about the future and I would like to see government policy which ensured that personal responsibility was encouraged.

I completely agree with you on that point.

As a nation we used to be proud of our sturdy independence, our self-esteem, our sense of pride in living within our incomes and not owing a soul. I remember my grandparents who were desperately poor, but had a set of values and priorities. I thought of them a few evenings ago when we saw a bloke complaining about how hard it was to make ends meet. He'd booked the flights for their holiday because he couldn't disappoint the kids, but wouldn't be able to afford spending money and 'what's a holiday without spending money?'

All the efforts to alleviate poverty over the past half-century or so have resulted in this situation, that saving for your old age is not now considered worthwhile. My grandparents thought they would have done well if they managed to stay out of the workhouse.

So what's the answer? I cannot get rid of the values I acquired as a child, that saving is good and being independent is to be aimed at. I haven't saved as much as I could have done, but I find I'm returning more and more to those values and not the values of the present day, as exemplified by 'don't save and get it all in benefits'. I don't know what the answer is.

EdInvestor

krisskross wrote: »

Don't worry, she will have no tax liability as a goodly part of her income is benefits (pension credit) which is not counted for tax purposes. She is not even using all her personal allowance.

But in fact she is over her personal allowance if she's under 65 and gets 121 a week (6292 a year).The personal allowance is 5435.

That's what's so ridiculous: if a person got the equivalent 121 a week in state and private pensions, they would be subject to tax on the amount over the personal allowance, ie 857.Tax would be payable now @20% of that, ie 171.

This would reduce their income to 6,121.Presumably, they would then be eligible for pension credit to bring it up back up to the minimum level. :eek:

The system is just plain silly.