[Finance] Should Pensioners Pay Tax?

[Official Old Man]

Or at least should the pension be tax free?
I'm now drawing what I've paid into for the past 50 years, my state pension. But my accountant has just given me my tax return for 2022 and I've had to pay tax on my pension. Where as most tax codes are 1263 or very close, mine is the equivelant of being 563 meaning I can only earn under £6K a year on top of my pension without paying tax.
I'm paying tax on something I've worked hard for and paid tax on already.
I might go and sit on a bus all day just to get my money back!

 

[Bold Seagull]

I might be being dense here, but aren't pension contributions tax free? You haven't paid any tax on that...

 

[A mex eyecan]

I might be being dense here, but aren't pension contributions tax free? You haven't paid any tax on that...

think you’re right

 

[East Staffs Gull]

Think the OP is referring to the State Pension. There’s no tax relief on NI contributions.

 

[GT49er]

Pensioners don't pay tax - well, not on their state OAP anyway - it just counts towards the same tax free allowance that everybody else - everybody else!- has. The tax threshold is £12,750 per year - if your income is less than that, you don't pay tax, period.
The OAP is roughly £7.5K per year - if that's all your income you don't pay tax. If you earn, or have other income of £5K on top of your pension, you still don't pay tax. More than that, and you're through the tax threshold - every £ is taxed after that, but none of the basic tax free £12,750.

 

[beorhthelm]

issue seems why you're getting re-coded, a question for the accountant.

 

[Curious Orange]

Think the OP is referring to the State Pension. There’s no tax relief on NI contributions.

... and National Insurance is not a savings scheme, people contributing NI now are paying the state pensions of those who are in receipt of it now.

 

[KZNSeagull]

Why would getting your state pension reduce your tax code? Doesn't make sense

 

[Bold Seagull]

Think the OP is referring to the State Pension. There’s no tax relief on NI contributions.

And the state pension doesn't reach your personal tax allowance amount...

 

[Seagull on the Hill]

Pensioners don't pay tax - well, not on their state OAP anyway - it just counts towards the same tax free allowance that everybody else - everybody else!- has. The tax threshold is £12,750 per year - if your income is less than that, you don't pay tax, period.
The OAP is roughly £7.5K per year - if that's all your income you don't pay tax. If you earn, or have other income of £5K on top of your pension, you still don't pay tax. More than that, and you're through the tax threshold - every £ is taxed after that, but none of the basic tax free £12,750.

After the pension increase due in April, the full State Pension will be over £10,000 pa.

 

[A mex eyecan]

issue seems why you're getting re-coded, a question for the accountant.

maybe owed tax from a previous year if total income of state pension and earning were higher than the tax free allowance

 

[chip]

I think that this is just to account for the part of the first year that you draw the state pension, there was a letter/reply in one from the FT/Guardian/Mail last week about this. It just ensures that you pay the correct tax for the period where you have paid employment and also some state pension income.

 

[drew]

Suspect the OP is being a little disingenuous! As GT49er stated, you have a tax free allowance. If the OP is paying tax then he receiving more than the state pension and the fact he has an accountant suggests he's probably getting quite a bit more than the state pension. I suspect the 50 years that he has been contributing to refers to a private pension plan.

 

[GT49er]

After the pension increase due in April, the full State Pension will be over £10,000 pa.

But not the basic state pension, unfortunately - not all OAPs will be entitled to the new rates (and that's not because of NI contributions, it's purely down to age - if you're over 72 you'll get £2500 a year less).

 

[Bob!]

Or at least should the pension be tax free?
I'm now drawing what I've paid into for the past 50 years, my state pension. But my accountant has just given me my tax return for 2022 and I've had to pay tax on my pension. Where as most tax codes are 1263 or very close, mine is the equivelant of being 563 meaning I can only earn under £6K a year on top of my pension without paying tax.
I'm paying tax on something I've worked hard for and paid tax on already.
I might go and sit on a bus all day just to get my money back!

I assume that tax code is for your private pension?

My guess is that the tax code you've been given takes into account that you are getting £7k ish tax free on your state pension, and you therefore have £5630 that is not taxed from your private pension.

 

[East Staffs Gull]

Why would getting your state pension reduce your tax code? Doesn't make sense

State pensions are always paid gross. They are never taxed at source. The new tax code that the OP has is not used to tax his state pension. It is used to tax other income. If he remained on the standard tax code, he would receive his state pension free of tax and have a personal allowance of £12k on his secondary income, which is clearly incorrect.

 

[Thunder Bolt]

The State pension is around £7,000 so under the tax threshold. I have a small private pension which takes me over so I pay income tax on the amount over £12500.
Of course, we all pay fuel tax, VAT, council tax etc.

 

[WATFORD zero]

If you are on the state pension you will be under the tax allowance and will not pay tax.

If you have other sources of income (investments, businesses, rental income, part time work, other pensions to name but a few) that take you over the tax limit then you will pay tax. But, given you have an accountant we both know this and I'm not sure why you really asked the question

But one thing pointed out earlier is so true

... and National Insurance is not a savings scheme, people contributing NI now are paying the state pensions of those who are in receipt of it now.

The National Insurance that you (and I, also retired) have paid over the years was spent on us at the time. Everything from healthcare, roads, policing, fire, education etc etc that we have benefited from over the years. If we are now receiving a state pension, it is because current hardworking taxpayers are paying their taxes which is paying the state pension. Obviously excluding the current Government

 

[Bold Seagull]

Once the OP has got off the bus, this thread should prove very helpful...

 

[The Optimist]

The OP has got it correct. He states that he can earn just under £6k from other sources before paying tax.

I think his point is that his state pension is paid for from his NI contributions which come from previously taxed income. Therefore he thinks the state pension shouldn’t count towards your tax free limit