State Pension & Income Tax

[backwoodsman]

One for any tax experts - or for anyone who has gone through similar. (Given the age of many on here, there must be plenty who've gone through it).

Am currently retired & getting a work-based pension. Value is over the personal tax allowance so am paying tax - which is deducted at source. Soon to start getting the state pension - which is taxable, but won't be deducted at source. So how does it work as regards paying the extra tax? Will the tax on my work pension be adjusted to cover it. Will it happen automatically or do I need to do something or tell someone? Am just thinking ahead as wouldn't want (possibly) to end up with a backdated tax bill sometime in the future.

 

[AmandaJR]

I asked HID (I'm far too young ) - For him the switch was automatic and full tax-free allowance was applied to his state pension and any surplus from the tax code to his private pension. So you'd get less personal allowance on your personal pension - if that makes sense.

 

[Tashyboy]

Watching this with interest as I didn’t know State pension was taxed.

 

[backwoodsman]

I asked HID (I'm far too young ) - For him the switch was automatic and full tax-free allowance was applied to his state pension and any surplus from the tax code to his private pension. So you'd get less personal allowance on your personal pension - if that makes sense.

Ta. Sort of what i imagined would happen. But do you know if he had to tell anyone in admin at the 'personal pension offices'? Or do they automatically know via 'the system'...

 

[AmandaJR]

Ta. Sort of what i imagined would happen. But do you know if he had to tell anyone in admin at the 'personal pension offices'? Or do they automatically know via 'the system'...

HMRC will notify them of the change in your tax code.

 

[backwoodsman]

HMRC will notify them of the change in your tax code.

 

[AmandaJR]

Have you set up a Government Gateway? Worth doing to check on your tax codes. I had so many issues with HMRC randomly changing my personal allowance from my main income stream to something else - usually some ad hoc part time work I'd done.

 

[SwingsitlikeHogan]

Watching this with interest as I didn’t know State pension was taxed.

Not taxed as such, just counts as income to be added to any personal pension you have, and if your total income exceeds the personal allowance then the residual amount is taxed as normal.

As the current individual tax allowance is £12,570 and the current full state pension is £10,600, if you have no personal pension income (or less than £1,970 a year) then no tax will be paid (on the State pension). Any tax due is made by a change to your tax code to accommodate the state pension that is sent to your personal pension provider if you have one, and your provider will deduct tax at source as required.

BTW…when you look on the State Pension website you’ll see that for the full new state pension you need 35 qualifying years of NI contributions. This can be confusing as you can have more than that and not qualify. That is, I believe, due to the change to the new pension in 2016 that made away with ‘opting out’…this was discussed at length on this forum a year or two back…I’ll see if I can find the thread. If you have a period of ‘opting out’ in you NI record you might not have 35yrs though you might appear to have. But tbh I can’t remember the detail.

 

[backwoodsman]

Have you set up a Government Gateway? Worth doing to check on your tax codes. I had so many issues with HMRC randomly changing my personal allowance from my main income stream to something else - usually some ad hoc part time work I'd done.

Good shout - yes I have set it up so will keep an eye on it.

 

[Robster59]

This is something that is going through my mind at the moment. I will be starting my old work pension from 1st August and want to make sure I get the tax details right so I don't get a surprise at a later date. I have an IFA (Independent Financial Advisor) and have a meeting with him next week so it will be one of the questions I will be asking him. I'll also notify my company. I'll be as open as I can in this to avoid any future financial hits. Not quite at Pension age yet so State Pension doesn't come in to it.

 

[Neilds]

Not taxed as such, just counts as income to be added to any personal pension you have, and if your total income exceeds the personal allowance then the residual amount is taxed as normal.

As the current individual tax allowance is £12,570 and the current full state pension is £10,600, if you have no personal pension income (or less than £1,970 a year) then no tax will be paid (on the State pension). Any tax due is made by a change to your tax code to accommodate the state pension that is sent to your personal pension provider if you have one, and your provider will deduct tax at source as required.

BTW…when you look on the State Pension website you’ll see that for the full new state pension you need 35 qualifying years of NI contributions. This can be confusing as you can have more than that and not qualify. That is, I believe, due to the change to the new pension in 2016 that made away with ‘opting out’…this was discussed at length on this forum a year or two back…I’ll see if I can find the thread. If you have a period of ‘opting out’ in you NI record you might not have 35yrs though you might appear to have. But tbh I can’t remember the detail.

I have always found this a bit weird. As a (relatively) high earner, my 35 years NI contributions are considerably higher than my wife's but we will both get the same amount. Maybe I need to make more use of the NHS to get some money back from my taxes, etc to balance the books

 

[Bunkermagnet]

Not taxed as such, just counts as income to be added to any personal pension you have, and if your total income exceeds the personal allowance then the residual amount is taxed as normal.

As the current individual tax allowance is £12,570 and the current full state pension is £10,600, if you have no personal pension income (or less than £1,970 a year) then no tax will be paid (on the State pension). Any tax due is made by a change to your tax code to accommodate the state pension that is sent to your personal pension provider if you have one, and your provider will deduct tax at source as required.

BTW…when you look on the State Pension website you’ll see that for the full new state pension you need 35 qualifying years of NI contributions. This can be confusing as you can have more than that and not qualify. That is, I believe, due to the change to the new pension in 2016 that made away with ‘opting out’…this was discussed at length on this forum a year or two back…I’ll see if I can find the thread. If you have a period of ‘opting out’ in you NI record you might not have 35yrs though you might appear to have. But tbh I can’t remember the detail.

I think you have misunderstood possibly. The ‘opting out’ was of SERPS, not NI. Therefore even if you opted out of SERPS, you still paid NI so should still count.
I opted out of SERPS, when I did as Maggie wanted to have my own private pension and reduce the extra part of the State pension burden, and then when they changed the rules opted back in. I have full NI history so will qualify for a full state pension when I reach retirement age.

 

[jim8flog]

When it comes to your notice of coding from the IR the first bit of the allowance is allocated to your state pension. Any remaining allowance is next allocated to your company pension scheme.
Given the current basic allowance and the amount of state pension* there is very little allowance left for you company pension scheme.

* The state pension can vary according to your personal circumstances eg years of contributions and what any spouses pension is/should have been.

 

[SwingsitlikeHogan]

I think you have misunderstood possibly. The ‘opting out’ was of SERPS, not NI. Therefore even if you opted out of SERPS, you still paid NI so should still count.
I opted out of SERPS, when I did as Maggie wanted to have my own private pension and reduce the extra part of the State pension burden, and then when they changed the rules opted back in. I have full NI history so will qualify for a full state pension when I reach retirement age.

You are right of course, i didn’t mean NI I meant SERPS.

But I can’t recall why having 35 qualifying yrs NI does not necessarily give you full state pension. It may be that the 35 yrs is associated with payers of NI contributions only starting doing so since 2016…with other full pension qualifying criteria for those of us who have been paying for much longer. Just can’t recall the detail. Came across it as my wife seemed to have something like 40 qualifying years but wasn’t getting a full state pension forecast.

 

[rulefan]

HMRC will notify them of the change in your tax code.

And in future years, as your state pension increases your tax code will be changed automatically and your pension provider informed.

 

[Tashyboy]

You are right of course, i didn’t mean NI I meant SERPS.

But I can’t recall why having 35 qualifying yrs NI does not necessarily give you full state pension. It may be that the 35 yrs is associated with payers of NI contributions only starting doing so since 2016…with other full pension qualifying criteria for those of us who have been paying for much longer. Just can’t recall the detail. Came across it as my wife seemed to have something like 40 qualifying years but wasn’t getting a full state pension forecast.

I think part of it was people inc some NHS workers never paid a ” full stamp”. Missis T came across this when checking for her 35 years. As it happened she never had the full 35 year entitlement but Martin Lewis mentioned where you could claim for looking after your grandkids. Think that finished in April.
Another thing too. Insider is buying extra years if you fall short.
Thanks for all the info

 

[jim8flog]

I think part of it was people inc some NHS workers never paid a ” full stamp”. Missis T came across this when checking for her 35 years. As it happened she never had the full 35 year entitlement but Martin Lewis mentioned where you could claim for looking after your grandkids. Think that finished in April.

My sister was a school teacher and she fell foul of that rule.

From a distant memory it was in the days when you put a stamp on a card. Married women could opt for a reduced rate if they had a husband that paid the full stamp and only pay for a married woman's stamp.

Quick google - that option finished in 1977.

 

[SwingsitlikeHogan]

I think part of it was people inc some NHS workers never paid a ” full stamp”. Missis T came across this when checking for her 35 years. As it happened she never had the full 35 year entitlement but Martin Lewis mentioned where you could claim for looking after your grandkids. Think that finished in April.
Another thing too. Insider is buying extra years if you fall short.
Thanks for all the info

I think it was something to do with this for my Mrs also as she had only ever worked in the NHS.

She has decided to not bother filling the gap by buying additional years as, IIRC, each year bought only gives an extra £23/month. Plus she has a part-time job that will also help fill the gap.

 

[Tashyboy]

I think it was something to do with this for my Mrs also as she had only ever worked in the NHS.

She has decided to not bother filling the gap by buying additional years as, IIRC, each year bought only gives an extra £23/month. Plus she has a part-time job that will also help fill the gap.

I think what narked Missis T was that she never knew she was paying a reduced rate until she had finished. Apparently a fair few nurses that finished at the same time said the same.

 

[NearHull]

Because I think that anyone approaching Pension age will be interested in this thread, I’ll add that in rough terms, if you are short of the 35 years of NI contributions, each year that you are able to purchase will take three years of pension payments to return the cost of the purchase. If you live beyond the three year point, you are ‘quids in’.