Savings and Investments thread

Rob7Lee said:

PragueAddick said:

@golfaddick  Not sure why you are suggesting the State pension is not taxed? Of course it is. It was in my taxable income for the last 8 years or so. If I had made 12k on, say, rental only in a year, and not had a state pension, I wouldn't have paid any tax. 

It's only "not taxed" if you don't have to declare it, surely?

Exactly your last point, it’s not taxed (at source), but generally you simply pay the tax on it via your other income, if you have any.

Yes this. 

The State Pension is taxable, but it is always paid in full without any tax taken off (should you have any other income). Its that other income that is then taxed at source and paid net. 

This is the problem I've been trying to highlight. There are lots of pensioners (millions?) whose only income is the State pension. Soon the State Pension will exceed the Personal Allowance. If so, where will the tax be taken from ?  They have no other income to be taxed, so logically it will have to be deducted from the State Pension. But seeing as the State Pension has never had tax taken from it something will have to budge. 

And I'm only been talking about the State 2nd Pension (the new one) that anyone retiring after 2016 has been receiving. There are millions drawing money from the old State Pension (my father for one) who get more due to the many changes the "Old Age Pension" has gone through. This has been brought to my attention, not only because of the forthcoming triple lock issues, but because my father is already receiving in excess of the PA and not paying tax (his pension includes the Graduation Pension and years of being contracted in during the 50's & 60's when there were no Company schemes for manual workers). 

However.....I've just checked online & it seems that plans are already on place. Pensioners whose State Pension is in excess of the PA will be sent a simple assessment letter from HMRC. They will have done a calculation, based on information from DWP, and will simply ask for a payment from the individual. This is supposedly starting from the summer of 2026 & will have until 31st Jan 2027 to pay it.

Eg. Someone has a State Pension of £14000. Take off their PA of £12570 leaves taxable income of £1,430. 20% of that = £286. 

I still think this will panic a lot of pensioners. 

Edit. 

Since writing my monologue it appears that @bobmunro has answered it more succinctly.

TelMc32 said:

Huskaris said:

bobmunro said:

Huskaris said:

Wouldn't it be great if the personal allowance got the triple lock treatment? Then it's solved and closer to some form of equity for working people. 

There was a call to increase the PA from £12,570 to £20,000 - that would cost £50 billion! Even raising it to say £16,000 would be cost prohibitive for our busted economy.

It aint happening - the most likely outcome is that from 2028/29 tax year it will increase by CPI each year, but that still might not happen.

Would be nice if something similar was done to pensions then, interesting how that is affordable...

It isn’t affordable. That’s why it isn’t being implemented. 

The point I'm making is how raising the personal allowance in line with triple lock criteria is easily dismissed as "unaffordable" yet getting rid of the triple lock, let alone means testing pensions is seen as unspeakable, when in reality triple locking pensions is unaffordable... 

State pensions will have to be completely overhauled at some point. 

Huskaris said:

TelMc32 said:

Huskaris said:

bobmunro said:

Huskaris said:

Wouldn't it be great if the personal allowance got the triple lock treatment? Then it's solved and closer to some form of equity for working people. 

There was a call to increase the PA from £12,570 to £20,000 - that would cost £50 billion! Even raising it to say £16,000 would be cost prohibitive for our busted economy.

It aint happening - the most likely outcome is that from 2028/29 tax year it will increase by CPI each year, but that still might not happen.

Would be nice if something similar was done to pensions then, interesting how that is affordable...

It isn’t affordable. That’s why it isn’t being implemented. 

The point I'm making is how raising the personal allowance in line with triple lock criteria is easily dismissed as "unaffordable" yet getting rid of the triple lock, let alone means testing pensions is seen as unspeakable, when in reality triple locking pensions is unaffordable... 

State pensions will have to be completely overhauled at some point. 

I’m not so sure. Not enough save or can afford to save for retirement so changing it significantly might just create more issues. 

golfaddick said:

Saw a piece on tv the other day that said that pre the triple lock a typical 2 pensioner household's income was roughly the same as a 2 adult / 2 children household income.

It is now £5k pa more, as pensions have gone up year by year but working incomes haven't due to pay freezes etc.

I’m not following the maths. 

CheshireAddick said:

Out of interest does anyone know what the state pension is for other European countries? (and what age do they retire?). I wouldnt be at all surprised if we are in the bottom 4 of all out European 'friends'

France went on strike & had riots when they increased their retirement age....from 62 to 64 !

No idea what it us in other European countries but I would hazard a guess that the UK current retirement age of 67 is one of the highest. 

valleynick66 said:

golfaddick said:

Saw a piece on tv the other day that said that pre the triple lock a typical 2 pensioner household's income was roughly the same as a 2 adult / 2 children household income.

It is now £5k pa more, as pensions have gone up year by year but working incomes haven't due to pay freezes etc.

I’m not following the maths. 

2 pensions = c£25k

average salary =£35k

What am I misunderstanding? 

That a lot of pensioners have other incomes other than the State Pension. My father is 94 next month & he only had an occupational pension scheme for the last 10 years of his working life. 

Lots of Baby boomers were / have been employed in sectors where occupational schemes are the norm. Lots of baby boomers have been in final salary schemes that are now closed to new employees. 

I have clients (mainly NHS doctors) that have an index linked pension in excess of £50k pa. 2 that I deal with (in their 70's) now have an NHS pension of £85k pa. I know a  NHS consultant who is taking his (old) NHS pension at age 59 and the increased TFC is more than the maximum £268,275. Taking his TFC at the maximum will still give him a pension of £70k pa. 

golfaddick said:

valleynick66 said:

golfaddick said:

Saw a piece on tv the other day that said that pre the triple lock a typical 2 pensioner household's income was roughly the same as a 2 adult / 2 children household income.

It is now £5k pa more, as pensions have gone up year by year but working incomes haven't due to pay freezes etc.

I’m not following the maths. 

2 pensions = c£25k

average salary =£35k

What am I misunderstanding? 

That a lot of pensioners have other incomes other than the State Pension. My father is 94 next month & he only had an occupational pension scheme for the last 10 years of his working life. 

Lots of Baby boomers were / have been employed in sectors where occupational schemes are the norm. Lots of baby boomers have been in final salary schemes that are now closed to new employees. 

I have clients (mainly NHS doctors) that have an index linked pension in excess of £50k pa. 2 that I deal with (in their 70's) now have an NHS pension of £85k pa. I know a  NHS consultant who is taking his (old) NHS pension at age 59 and the increased TFC is more than the maximum £268,275. Taking his TFC at the maximum will still give him a pension of £70k pa. 

Yes I understand if you are saying a group don’t ‘need’ the state pension in addition to other income sources. I guess though that’s arguably addressed by it being taxable income. 

golfaddick said:

Rob7Lee said:

PragueAddick said:

@golfaddick  Not sure why you are suggesting the State pension is not taxed? Of course it is. It was in my taxable income for the last 8 years or so. If I had made 12k on, say, rental only in a year, and not had a state pension, I wouldn't have paid any tax. 

It's only "not taxed" if you don't have to declare it, surely?

Exactly your last point, it’s not taxed (at source), but generally you simply pay the tax on it via your other income, if you have any.

Yes this. 

The State Pension is taxable, but it is always paid in full without any tax taken off (should you have any other income). Its that other income that is then taxed at source and paid net. 

This is the problem I've been trying to highlight. There are lots of pensioners (millions?) whose only income is the State pension. Soon the State Pension will exceed the Personal Allowance. If so, where will the tax be taken from ?  They have no other income to be taxed, so logically it will have to be deducted from the State Pension. But seeing as the State Pension has never had tax taken from it something will have to budge. 

And I'm only been talking about the State 2nd Pension (the new one) that anyone retiring after 2016 has been receiving. There are millions drawing money from the old State Pension (my father for one) who get more due to the many changes the "Old Age Pension" has gone through. This has been brought to my attention, not only because of the forthcoming triple lock issues, but because my father is already receiving in excess of the PA and not paying tax (his pension includes the Graduation Pension and years of being contracted in during the 50's & 60's when there were no Company schemes for manual workers). 

However.....I've just checked online & it seems that plans are already on place. Pensioners whose State Pension is in excess of the PA will be sent a simple assessment letter from HMRC. They will have done a calculation, based on information from DWP, and will simply ask for a payment from the individual. This is supposedly starting from the summer of 2026 & will have until 31st Jan 2027 to pay it.

Eg. Someone has a State Pension of £14000. Take off their PA of £12570 leaves taxable income of £1,430. 20% of that = £286. 

I still think this will panic a lot of pensioners. 

Edit. 

Since writing my monologue it appears that @bobmunro has answered it more succinctly.

If anybody has tried living off 14k a year on this forum, ask yourself what getting a letter from HMRC asking for £286 (with their usual menaces)  would  feel like. Also, one reason this government got into trouble was by trying to take £200 from pensioners through the winter fuel allowance. Just wait for the s*** to hit the fan when these HMRC letters start arriving.

Southbank said:

golfaddick said:

Rob7Lee said:

PragueAddick said:

@golfaddick  Not sure why you are suggesting the State pension is not taxed? Of course it is. It was in my taxable income for the last 8 years or so. If I had made 12k on, say, rental only in a year, and not had a state pension, I wouldn't have paid any tax. 

It's only "not taxed" if you don't have to declare it, surely?

Exactly your last point, it’s not taxed (at source), but generally you simply pay the tax on it via your other income, if you have any.

Yes this. 

The State Pension is taxable, but it is always paid in full without any tax taken off (should you have any other income). Its that other income that is then taxed at source and paid net. 

This is the problem I've been trying to highlight. There are lots of pensioners (millions?) whose only income is the State pension. Soon the State Pension will exceed the Personal Allowance. If so, where will the tax be taken from ?  They have no other income to be taxed, so logically it will have to be deducted from the State Pension. But seeing as the State Pension has never had tax taken from it something will have to budge. 

And I'm only been talking about the State 2nd Pension (the new one) that anyone retiring after 2016 has been receiving. There are millions drawing money from the old State Pension (my father for one) who get more due to the many changes the "Old Age Pension" has gone through. This has been brought to my attention, not only because of the forthcoming triple lock issues, but because my father is already receiving in excess of the PA and not paying tax (his pension includes the Graduation Pension and years of being contracted in during the 50's & 60's when there were no Company schemes for manual workers). 

However.....I've just checked online & it seems that plans are already on place. Pensioners whose State Pension is in excess of the PA will be sent a simple assessment letter from HMRC. They will have done a calculation, based on information from DWP, and will simply ask for a payment from the individual. This is supposedly starting from the summer of 2026 & will have until 31st Jan 2027 to pay it.

Eg. Someone has a State Pension of £14000. Take off their PA of £12570 leaves taxable income of £1,430. 20% of that = £286. 

I still think this will panic a lot of pensioners. 

Edit. 

Since writing my monologue it appears that @bobmunro has answered it more succinctly.

If anybody has tried living off 14k a year on this forum, ask yourself what getting a letter from HMRC asking for £286 (with their usual menaces)  would  feel like. Also, one reason this government got into trouble was by trying to take £200 from pensioners through the winter fuel allowance. Just wait for the s*** to hit the fan when these HMRC letters start arriving.

I know, hence why I think that Rachel Reeves will have to increase the Personal Allowance.....even if it's just for those on limited incomes.

As I said, I wouldn't want to he in her shoes.

PragueAddick said:

I may well have completely lost it, but FFS....

On what planet does it make any sense to tax a State pension, whose payments are regulated by the State? Give millions of citizens money and then make them pay back 20% or so a year later via a convuluted tax reporting system to a tax office that is barely functioning? FFS!!! If you want to reduce the size of the State pension, then do it. Reduce, or don't increase, the net payment. Not this way, by taxing it, driving everyone even more nuts with their tax returns and putting an even bigger burden on the hapless HMRC. 

I mean...what am I missing here?

Partly agree, but this is the issue with the tax free allowance being frozen yet the state pension being raised significantly (wasn't only around £7k in 2020).

My solution solves all of this, make the tax free allowance £18-20k. Simples........ Anyone earning over around £125k doesn't get the allowance anyway, so it can't be said to be helping the richest. Then just tweak the 20/40 and maybe 45p bands to a slightly higher level to balance out along with in work benefits. You'd likely also raise more VAT as for the lower earners the additional net income will be spent rather than saved.

Think you guys are overstating the issues. To be liable for tax youd have to be on the full state pension with 35 years NI contributions. I'll bet very few people who qualify won't have any kind of private pension at all.

The real issue is the triple lock. It will kill the country's finances gradually like a frog in a pot but I doubt anyone will be brave enough to get rid.

If you are still working at retirement age then employee NI becomes zero.  It wouldn't be that difficult to have a different PA that kicks in when a person hits their retirement age.  Tie that increase in PA to the triple lock too, or rate of inflation and basic state pension shouldn't ever get taxed.

Jints said:

Rob7Lee said:

PragueAddick said:

I may well have completely lost it, but FFS....

On what planet does it make any sense to tax a State pension, whose payments are regulated by the State? Give millions of citizens money and then make them pay back 20% or so a year later via a convuluted tax reporting system to a tax office that is barely functioning? FFS!!! If you want to reduce the size of the State pension, then do it. Reduce, or don't increase, the net payment. Not this way, by taxing it, driving everyone even more nuts with their tax returns and putting an even bigger burden on the hapless HMRC. 

I mean...what am I missing here?

Partly agree, but this is the issue with the tax free allowance being frozen yet the state pension being raised significantly (wasn't only around £7k in 2020).

My solution solves all of this, make the tax free allowance £18-20k. Simples........ Anyone earning over around £125k doesn't get the allowance anyway, so it can't be said to be helping the richest. Then just tweak the 20/40 and maybe 45p bands to a slightly higher level to balance out along with in work benefits. You'd likely also raise more VAT as for the lower earners the additional net income will be spent rather than saved.

That wouldn't be a tweak. A raise to 20k would cost £60 billion. Either huge increases in tax elsewhere or massive cuts. Not simples at all

https://www.tax.org.uk/raising-income-tax-threshold-boost-for-vulnerable-or-blow-to-public-services

Would only cost 60bn if you did nothing else, you’d need the full facts and figures, but raising to 25p/45p the two bands for instance may balance it out together with lower working tax credits etc.

it simply crazy that someone on minimum wage has 1/3rd of their salary taxed.

Jints said:

Think you guys are overstating the issues. To be liable for tax youd have to be on the full state pension with 35 years NI contributions. I'll bet very few people who qualify won't have any kind of private pension at all.

The real issue is the triple lock. It will kill the country's finances gradually like a frog in a pot but I doubt anyone will be brave enough to get rid.

We are not overstating the issue but you are correct that the triple lock is the problem.

My father is 94 and draws the "old age" pension. He now receives around £16k pa. Plus a very small company pension (c£1600pa) which looks like is not being taxed. No idea why.

However, anyone retiring since 2016 receives the New State pension. With full NI contributions this is currently paying £230.25 per week = £11,973 pa. In April next year, if it increases in line with average earnings (4.7%) then it rises to £12, 535. Just a smidgen under the Personal Allowance. 

You wont need any other pension income to soon be over the PA and thus paying tax. As @pragueaddick said - it is madness that a "benefit" that is paid to all pensioners will soon be taxed. DWP pay it to you with one hand and HMRC will be taking some back with the other.