[Finance] Should Pensioners Pay Tax?

[Official Old Man]

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.

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

 

[severnside gull]

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!

My state pension is way lower than my tax allowance. I pay tax on my private pension because combined they exceed my allowance. That is perfectly reasonable.
I am waiting (and trying not to laugh) at the incentives Jeremy Hunt will offer me to return to work
Not even non Dom tax free status will make that happen

 

[GT49er]

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

Yes, if you carry on working when you start receiving your state OAP your tax bill will increase - but your income goes up by £7.5 K too! Of course, tax at 20p in the £ means that your actual total take home pay will only increase by £6K. Life's a bitch, eh!

 

[The Antikythera Mechanism]

Yes, if you carry on working when you start receiving your state OAP your tax bill will increase - but your income goes up by £7.5 K too! Of course, tax at 20p in the £ means that your actual total take home pay will only increase by £6K. Life's a bitch, eh!

Just started receiving my state pension and it’s £13.7k rising to £15k shortly.

 

[Elbow750]

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

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!

 

[GT49er]

Just started receiving my state pension and it’s £13.7k rising to £15k shortly.

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

State pension changes 2023 / 2024- Times Money Mentor

The latest UK state pension changes including how much it went up in the 2023 / 2024 tax year, how the triple lock works and the forecast

www.thetimes.co.uk

 

[East Staffs Gull]

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!

I was referring to the NIC’s that he paid during his working lifetime.

 

[WATFORD zero]

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

I agree that's what he thinks, but that's not correct. His NI contributions that he paid were all spent making sure he was well looked after by the State at the time he was paying for them. His state pension is now being paid for by current taxpayers and I'm of the school of thought that says, if they have to pay tax over a certain level of income, to give me an income, then I should too

 

[The Antikythera Mechanism]

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

http://[URL]https://www.thetimes.co...e/#How-much-will-the-state-pension-be-in-2023

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Just myself and it is a state pension paid by DWP.

 

[sparkie]

Yes. If they earn enough.

 

[The Optimist]

I agree that's what he thinks, but that's not correct. His NI contributions that he paid were all spent making sure he was well looked after by the State at the time he was paying for them. His state pension is now being paid for by current taxpayers and I'm of the school of thought that says, if they have to pay tax over a certain level of income, to give me an income, then I should too

I agree with you that the system should stay as it is.

 

[dejavuatbtn]

Should Pensioners Pay Tax?​

Damn right they should. I certainly do.

 

[GT49er]

Just myself and it is a state pension paid by DWP.

It would be interesting to know why you get roughly twice the standard rate of state pension. I would hope for your sake you're not in a position that the DWP would also be interested to know!

 

[The Antikythera Mechanism]

It would be interesting to know why you get roughly twice the standard rate of state pension. I would hope for your sake you're not in a position that the DWP would also be interested to know!

The DWP calculated it based on my contributions. All checked out by my IFA and accountant

 

[Elbow750]

I was referring to the NIC’s that he paid during his working lifetime.

There has always been an allowance before you start to pay NIC. Therefore some of his earned income has alway been tax free and NIC free, so he hasn;'t paid tax on all his NIC!

 

[A mex eyecan]

The DWP calculated it based on my contributions. All checked out by my IFA and accountant

so have you been paying nearly twice NI’s that what you should have all your working life?

 

[GT49er]

The DWP calculated it based on my contributions. All checked out by my IFA and accountant

Deferred it for an awful long time? One way of increasing it I know - I did, a bit - but fell out with my employer and didn't defer as long as I intended!
Oh well, none of my business - carry on enjoying your good fortune.

Incidentally, as well as the state OAP, I also get a pension from the DWP - earned by working for the b******s for 20 years!

 

[The Antikythera Mechanism]

so have you been paying nearly twice NI’s that what you should have all your working life?

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

 

[Weststander]

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

More than tax free, tax relief was given on the contributions.

 

[Weststander]

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

The state pension in the vast majority of cases is lower than the tax free personal allowance.

One way or another, it’s effectively tax free. The tax falls on other income.