[Finance] Should Pensioners Pay Tax?

[Weststander]

There is a threshold at which NI contributions start (£242 a week?). Therefore about £11.5 k of income isn't taxed or any NI paid on it.

Also , NI isn't payable on pension income!

OAP’s don’t pay national insurance at all, even on employment earnings.

 

[East Staffs Gull]

Just for yourself? It's not all state pension then.............................

How much is the state pension in 2024 and 2025? - Times Money Mentor

Free to read: We explain the current UK state pension amount, how much it increased in 2024, plus what rise is coming in April 2025

www.thetimes.co.uk

Maybe Additional State Pension on top of State Basic Pension, as per the old rules?

 

[AnotherArch]

No idea, but probably, based on what I earned.

It's all to do with SERPS way back when. This is an earnings-related element that is added to the standard basic pension. More NI was paid on higher earnings so this is some of the extra contribution coming back. My state pension is currently £12.7k, and could have been higher but we were 'contracted out' for some years.

 

[GT49er]

Maybe Additional State Pension on top of State Basic Pension, as per the old rules?

Maybe - but I thought I'd paid in for some of that back in the day, but .....................................................

 

[banjo]

If only you were in politics

 

[PILTDOWN MAN]

Yes if over the threshold

 

[East Staffs Gull]

Maybe - but I thought I'd paid in for some of that back in the day, but .....................................................

I think it would depend upon the level of your earnings and on how long you contributed to SERPS and S2P.

 

[razer]

January is littered with indignant clients who blame their accountant for the size of their tax bill. It's never their fault.

I am often asked "How can I pay less tax?" . The standard response is "Earn less".

 

[Husty]

First thoughts would be why are you employing an accountant if you only have a small pension?

Either being taken for a ride or not telling us the whole picture here. (And also not understanding how the tax system works, as noted above!)

 

[Dave the OAP]

No. I need my money for Moët and cruises!

 

[Bodian]

GT49er got it spot on. My tax code is indeed 1275. But my state pension is included in that £12750 meaning I can now only earn £5000 tax free. Don't get me wrong, I love my free pension but I'm still fairly fit and want to carry on working. But my tax bill is increasing due to the pension payments. Surely it would encourage OAP's to carry on working if the pension was not included in taxable pay, change the tax code to 1975.
ps It's way past my bedtime. Horlicks anyone

You could refuse to take your state pension. Then you could earn £12,500 before you have to start paying tax!

 

[Official Old Man]

OK, you all win. Keep the tax. But a couple of final points.
I have an accountant for one day a year. I do all my own book work as self employed running shops. He does the final figures and juggles it all about to come up with my tax bill. It was him that explained the reason I've to pay a few thousand more was because of my pension.
I employ someone over pension age who has worked for me for years. They wont leave and I don't want him to go. Honest staff are hard to find. But after deductions he earns a pound less per hour than a single young girl on minimum wage.
Meanwhile I'm retireing this April and my offspring will take over.

 

[Worried Man Blues]

If we don't get a rise with inflation ...........then we strike!

 

[keaton]

OK, you all win. Keep the tax. But a couple of final points.
I have an accountant for one day a year. I do all my own book work as self employed running shops. He does the final figures and juggles it all about to come up with my tax bill. It was him that explained the reason I've to pay a few thousand more was because of my pension.
I employ someone over pension age who has worked for me for years. They wont leave and I don't want him to go. Honest staff are hard to find. But after deductions he earns a pound less per hour than a single young girl on minimum wage.
Meanwhile I'm retireing this April and my offspring will take over.

But presumably while "earning less" he's also getting a pension paid to him?

 

[Official Old Man]

But presumably while "earning less" he's also getting a pension paid to him?

Yes, a pension he's worked hard for. But why should he now be working the same as the person next to him but at the end of the day be working for less money. This is my point. A simple tax code change would mean he is still earning the same as the person next to him. Or he could work less hours, say work 10 hours a week at £10 hour would give him a tax free income. But that's not what he wants.
And my income is based on profit from the company so I cant control that other than close down for a few weeks when I get close to my £5000 profit.

 

[keaton]

Yes, a pension he's worked hard for. But why should he now be working the same as the person next to him but at the end of the day be working for less money. This is my point. A simple tax code change would mean he is still earning the same as the person next to him. Or he could work less hours, say work 10 hours a week at £10 hour would give him a tax free income. But that's not what he wants.
And my income is based on profit from the company so I cant control that other than close down for a few weeks when I get close to my £5000 profit.

But if you have a full-time person next to part-time person they would be in the same position by your reasoning? In short yes you should pay tax on persion because you're taxed on income rather than wages, and otherwise there'd be even more tax avoidance

 

[GOM]

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

State pension is regarded as income the same as any other income be it another pension or a job. It is treated as the primary source, regardless of any other sources.
The reason for this is because it a known amount and will not change over the year so if you do have more than one income the tax code attached to the state pension will match the amount of the state pension. In 2023/2024 full state pension will be £10600 so code assigned to that will be 1060, leaving £1970, from the 12570 allowance (tax code 197) to be allocated somewhere else.
HMRC will always automatically assign tax allowances to pensions first, as mentioned because, they are fixed amounts and don't change over the year, followed by any other incomes such as jobs.
Simple eh !

NB you can ask HMRC to allot allowances however you like but the above is the default.

 

[Westdene Seagull]

Yes, a pension he's worked hard for. But why should he now be working the same as the person next to him but at the end of the day be working for less money. This is my point. A simple tax code change would mean he is still earning the same as the person next to him. Or he could work less hours, say work 10 hours a week at £10 hour would give him a tax free income. But that's not what he wants.
And my income is based on profit from the company so I cant control that other than close down for a few weeks when I get close to my £5000 profit.

I assume you state he's earning less than someone else because he's paying more tax rather than actually being paid less .... and in this case I would assume both get the living wage.

 

[A mex eyecan]

Yes, a pension he's worked hard for. But why should he now be working the same as the person next to him but at the end of the day be working for less money. This is my point. A simple tax code change would mean he is still earning the same as the person next to him. Or he could work less hours, say work 10 hours a week at £10 hour would give him a tax free income. But that's not what he wants.
And my income is based on profit from the company so I cant control that other than close down for a few weeks when I get close to my £5000 profit.

why can’t you control your earnings? even if related to profits? If you are paid as salary then just pay yourself less. If you take your ‘pay’ via dividends (i assume this is where they come from seeing as you say they are effected by profits) then just pay less in dividends. Both would reduce your tax but naturally reduce what you take home as well.

As my old Mum always said, if you’re paying the tax then you must have earned the money.

 

[Thunder Bolt]

State pension is regarded as income the same as any other income be it another pension or a job. It is treated as the primary source, regardless of any other sources.
The reason for this is because it a known amount and will not change over the year so if you do have more than one income the tax code attached to the state pension will match the amount of the state pension. In 2023/2024 full state pension will be £10600 so code assigned to that will be 1060, leaving £1970, from the 12570 allowance (tax code 197) to be allocated somewhere else.
HMRC will always automatically assign tax allowances to pensions first, as mentioned because, they are fixed amounts and don't change over the year, followed by any other incomes such as jobs.
Simple eh !

NB you can ask HMRC to allot allowances however you like but the above is the default.

Isn't the £10,600 state pension for newer pensioners, ie those born after 1950?