Some people already paying tax into their state pensions – BBC News

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  • author, Kevin Peachey
  • role, Cost of Living Correspondent

The report said some people are already paying income tax on their state pensions, despite the Conservative government’s pledge to leave them tax-free.

The standard new state pension is currently below the £12,570 threshold at which income tax is paid, but future increases could raise it above that level.

The Conservative manifesto includes a plan for triple lock plus to raise the tax-free threshold so that new state pensions are not subject to income tax.

But pension consultancy LCP said people already receive different amounts of state pension, some of whom have already paid tax and others will continue to pay.

It’s a result of the complexity and tolerance of the current system.

Many people have contacted us seeking clarification on pension policy, with some pointing out that some pension income is already taxed.

“Is the promise of no tax guaranteed?”

Alan, from West Sussex, asked: “Can I be guaranteed that my pension will be triple locked and tax free?”

All major parties have said they will maintain the triple lock – a promise to increase state pensions each year by the highest of wages, the rate of inflation and 2.5%.

Under the major parties’ plans, the minimum tax amount would be frozen for at least the next three years, increasing the likelihood that many people who only receive a state pension will have to pay tax.

But the Conservatives say they will introduce triple lock plus, raising standards to stop this from happening.

Around 12 million people are on a state pension, with the standard amount falling below the current tax-free limit of £12,570.

But LCP research shows that 2.5 million people are already receiving higher pensions under the state pension system and they have been and will continue to be taxed.

The old state pension system for people who reached pension age before 2016 was complicated and some people also received additional state pension payments.

Subsequent new state pension schemes were designed based on standard rates.

But some pensioners could still get more than the standard amount under the new system, due to transitional provisions that allow people who saved under the old system to maintain their entitlements. Around 300,000 people would get an amount that would be subject to income tax, the report said.

Sir Steve Webb, a former Liberal Democrat pensions minister and partner at LCP, said: “The reality is that the amount pensioners receive varies hugely – from a few pounds a week to hundreds of pounds a week.”

“We estimate that around 2.5 million pensioners, or more than one in five of all pensioners, receive state pensions that exceed the income tax limit. The majority of these pensioners would continue to be taxpayers even if future policies linked the income tax credit to an increase in the prime state pension rate.”

A Conservative spokesman said: “Under the triple lock plus, the tax-free allowance for pensioners will rise in line with the fastest rate of increases in prices, earnings or 2.5%, just like the state pension.”

He said millions of pensioners would end up paying more tax under a Labour government.

Labour says the Conservative plan is not credible.

“My working pension is taxable.”

Rosie, from Scotland, said there was the impression that pensioners didn’t pay tax but “state pensions are taxable income and the freeze on the minimum tax rate means that many people with small working pensions are subject to tax.”

Under the Labour, Conservative and Liberal Democrat plans, the minimum income tax threshold would remain frozen for the next three years.

This means that as incomes rise, more people will have to pay more tax.

This includes pensioners who receive income from a workplace or private pension in addition to their state pension income.

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