Tax And Pension Confusion

[Tarser]

I'm going to get my state pension in 2026 which will be a bit more than £11,500 per year. The tax allowance is approx a thousand pounds more than that. Just want to make sure this is right: If I earn a couple of thousand pounds over my tax allowance when I'm drawing my pension, will my pension, plus earnings be lumped together to be taxed at 20% ? Hence the call to raise the allwance to £15,000. It's like the pension has been designed to be beneath what anyone can live on, forcing them to continue working so that the government will recoup a chunk of the state pension. Have I got that right? probably better then to not work at all and claim for any top-up benefits that I might be able to get when I get my pension. 

[davebro3]

state pension is taxable, so:

state pension+any other pensions+any earnings+any savings interest above £1000 minus your personal allowance = income taxable at 20% (or 20% and higher rate(s) if applicable)

[CrapatCryptics2]

Did you not make any private provision for an additional pension.

[davebro3]

* savings interest in ISAs is not taxed (yet!)

[New Judge]

"If I earn a couple of thousand pounds over my tax allowance when I'm drawing my pension, will my pension, plus earnings be lumped together to be taxed at 20% ?"

Alhough not taxed at source, the State Pension forms part of your taxable income.  Most people have a tax free allowance (currently £12,570). So in your scenario, you will pay tax on (£14,570 - £12,570) which equals £2,000. At 20% this means you will pay £400 tax.

To receive "top ups" (by which I assume you mean Pension credit) you must have an income of less than £11,344. So your State Pension alone will take you beyong the qualification level for Pension Credit.   

[CrapatCryptics2]

https://www.gov.uk/pension-credit

There will probably be other benefits you can claim

[davebro3]

to understand completely:

// If I earn a couple of thousand pounds over my tax allowance when I'm drawing my pension,//

Do you mean you will earn £14,570 in addition to your state pension?

[douglas9401]

😕

[New Judge]

"Do you mean you will earn £14,570 in addition to your state pension?"

Good point, dave.

In that case, tarser, your total taxable income will be £14,570 plus £11,500, which equals £26,070.

Tax will be payable on (£26,070 - £12,570) which equals £13,500. Tax on that at 20% will be £2,700.

[vulcan42]

"Did you not make any private provision for an additional pension."

I did, now every time there's an increase in the state pension, 20%  of the rise is added to my other pension and I pay more tax. My additional pension gets smaller every time there's a state pension increase.

[Hopkirk]

I'm going to continue working part time after I reach pension age, with the benefit that I should stop paying national insurance then.

What is the betting Ms Reeves will stop this and make me continue paying NI? Pretty high I think.

[THECORBYLOON]

I think from his, "Hence the call to raise the allwance to £15,000." and "couple of thousand pounds over my tax allowance" he means his pension plus earnings would be below £15,000 and not taxable

Even if the personal allowance were raised to £15,000, there would be pensioners taxed still because of income above that figure.

Are those calling for a £15,000 threshold wanting that only for pensioners or do they want it for everyone?

[Tarser]

NEW JUDGE: Thank you! I think I understand it now. I'll only be taxed on the income I earn that goes over my allowance. I wasthinking that I'd be taxed at 20% of my entire income including the pension!

If pension credit is only paid to people who have an income less than the state pension, I presume this is only for people haven't paid enough NI to receive the full pension.

CRAPATCRYPTICS2: I took out three private pensions over the years but they were worth as little as £200 per YEAR and I was in dire need of a new roof and a boiler so I cashed them in when I was 55

 

DAVEBRO 3 Sorry, I meant if I earned £2000 on top of my pension. 

 

Many thanks for all the answers!

  

[barry1010]

Tarser, sorry to point out that you are wrong.  The 'new' state pension is approximately £220 a week if you have paid full NI contributions.  The cut off for pension credit is £218 so they don't get it.

There are many people receiving the 'old' basic pension having paid full NI but they get only £169.50 a week so do get pension credit