The Budget

You’re right, sorry I wasn’t minimising what it means if you do have to live on just a state pension. It must be very galling to be surviving just above that level and be told you now have to pay tax though, the personal allowance should be raised now.

I totally agree. I have said that in the comments previously, the personal tax allowance freeze has made things 100 times worse than it should be. They are giving us triple lock pensions and taking everything away when we pay tax and all the other increases in our daily lives.

100% agree, there is too narrow a margin between claiming benefits and not claiming benefits.

Ah no apology needed Casdon. I know you’ll know. I was just pointing it out is all.
😊

The government can change anything they want at a moment's notice without consulting the public, like they did with the Triple Lock during Covid and didn't honour it for a year, but when it comes to helping the public by cancelling this absurd freeze on the Personal Tax Allowance, they refuse to do it and it will stand until 2028, by that time many of us oldies won't be here to enjoy a warm and comfortable life with a bit extra money in our pockets. Perhaps that is what the Government are wanting, for us all to leave this earth so they can stop giving us our pensions.

AlwaysSmiling

100% agree, there is too narrow a margin between claiming benefits and not claiming benefits.

There will always be a ‘narrow margin’ for means-tested benefits. It’s called a threshold. You are either above or below it, whatever the level at which it’s set.

ordinarygirl

please tell me that I'm wrong but my understanding is that the NS&I helps raise money for the treasury . so if the premium bond limited was raised and the prize fund also increased then it would help provide money . I ready somewhere that £80miillion was taken from the NS&I as people want better interest rates .

Yes, it would raise money but many people want, maybe need, a guaranteed return on their investment and Premium Bonds do not offer that. The appeal of Premium Bonds is the gamble.

A lot of people did put money into Premium Bonds following the 2008 financial crash because bank rates plummeted to records lows where they remained for fourteen years - it made bonds worth a punt - but things are different now.

The National Debt is the total amount owed by the government which has accumulated over the years. It currently owes £2.5 trillion. £2,500,000,000,000.

Premium Bonds are part of that debt. It is money 21 million bond holders over time have loaned to the government with no guarantee of a return.

Currently, there are 121,199,925,000 bonds held - 121.2 billion. This represents only around 5% of the National Debt.

In 2023 the government paid £4.6 billion in prizes, effectively interest on that 121.2 billion debt. But that monthly prize fund isn’t shared equally.

Each month, a handful of people will win a lot of money, some will win a small amount but the vast majority of bondholders will receive absolutely nothing.

The consistent winners are the 1.16 million people who have the maximum £50,000. They hold almost half of all premium bonds (Paul Lewis August 2023)

In 2023, the median winner from those 1.16 million people would have won £2,325. You find the median winner by lining up everyone with the same number of bonds and see what the one in the middle won. That defines typical luck. (Martin Lewis).

The prize fund was decreased in March 2024 so that person might hope to win say £2,300 in 2024 but there is no guarantee that they will.

If that money was in an ISA stack it could have earned £2750 last year guaranteed and tax free.

Premium Bonds aren’t a good investment for the vast majority of the 21 million people who own them. Since interest rates started to rise in 2022, people have been cashing them in, getting their money back from the government and investing somewhere with a guaranteed return.

Casdon

You’re right, sorry I wasn’t minimising what it means if you do have to live on just a state pension. It must be very galling to be surviving just above that level and be told you now have to pay tax though, the personal allowance should be raised now.

The reason most people have income above the state pension is because they have some form of private pension. When they made the contributions they didn't pay tax on them, so see it as deferred taxation.

And, yes, I pay tax on my occupational pensions, but I'd rather have them (and pay tax on them) than not. Of course, I'd rather not pay tax on them, but I expect most people would rather not pay income tax.

If the personal allowance hadn’t been frozen from 2021/22 though a lot of pensioners wouldn’t now be over the threshold. It seems iniquitous to raise the state pension with one hand and take some of it away in tax as a consequence of another action.

Casdon

If the personal allowance hadn’t been frozen from 2021/22 though a lot of pensioners wouldn’t now be over the threshold. It seems iniquitous to raise the state pension with one hand and take some of it away in tax as a consequence of another action.

But it wasn't taxed in the first place. Paying into a pension fund is an efficient way of paying tax because people end up paying less. If the income comes from another source (eg rent), I see no reason at all why it shouldn't be taxed.

Obviously we see this differently then growstuff. I can’t see that increasing the number of people paying small amounts of income tax is in any way efficient. It penalises them because they have had a state pension rise, creates more work for the Tax Office for the sake of what for many people will be a lot of hassle for a small amount, and masks the reason why so many are being put into this position for the first time, which is the lack of increase in the personal allowance at a time when inflation is high. It’s mad - and no, it won’t make much difference to me because my state pension is already taken into account on my existing tax bill - but those with the least will feel it, which to me seems wrong.

Freezing the personal allowance is the most challenging aspect of all this for those on a low income. Sneaky.

Casdon

Obviously we see this differently then growstuff. I can’t see that increasing the number of people paying small amounts of income tax is in any way efficient. It penalises them because they have had a state pension rise, creates more work for the Tax Office for the sake of what for many people will be a lot of hassle for a small amount, and masks the reason why so many are being put into this position for the first time, which is the lack of increase in the personal allowance at a time when inflation is high. It’s mad - and no, it won’t make much difference to me because my state pension is already taken into account on my existing tax bill - but those with the least will feel it, which to me seems wrong.

I care about more than pensioners. There are other ways to help those who are really struggling. In reality, it will make very little difference to those only in receipt of the state pension. Those already receiving more will already be registered and I don't suppose a computer calculating different figures will cost HMRC anything. Those with the least won't even be affected.

Why do you think caring about pensioners equates to not caring about other people on low incomes? This is about people who are not currently paying any tax, so by definition it is poorer pensioners we are talking about, although marginally more wealthy than people only receiving the state pension.

As I understand it, the government’s plans were to use the frozen personal tax allowance to create fiscal drag until 2028-29, bringing four million additional people into the income tax net by 5 April 2029 and raise an additional £44.6 billion in tax. Reducing NIC reduces the burden a little for working people.

obr.uk/box/fiscal-implications-of-personal-tax-threshold-freezes-and-reductions/

If your only source of earned income is state pension and you have maximum new state pension then you won’t be caught by fiscal drag in 2024/25 because your pension will be £11,506 and the tax threshold is £12,570. Obviously, if you have protected payments through paying SERPS or SP2 or receive the basic pension plus Additional State Pension and the total exceeds the new state pension you might be caught.

If the triple lock remains and earnings or inflation rises by another 8.1% - the percentage the April 2024 pension increase is based on - the pension for 2025-26 would be £12,438 so still below the threshold for tax. It would only start to bite in 2026-27 if earnings or inflation continued to rise at the same rate.

By January 2025 latest we will have a new government who may have a different economic strategy. If having the state pension alone brings people into the tax net, any new government would have to find a way to administer that which would not be straightforward.

It’s worth mentioning or reminding people that in 1999, Ed Davey introduced a motion to build on the existing 1977 Labour Rooker-Wise amendment that made the personal tax allowances rise in line with the RPI. Davey proposed that personal tax allowances rise by the higher of RPI and the Earnings Index. He was seeking cross-party support but didn’t get it.

In his speech he said:

^In the 1993 Finance Bill, the Conservative government wanted to freeze allowances, but the Hon. Member for Birmingham, Perry Barr [Jeff Rooker] said that:

There must be no taxation by stealth.

… which is what fiscal drag is.

Note too that it was another Lib-Dem Steve Webb who introduced the Triple Lock when he was Pensions Minister in the Coalition government. (He is now partner in the law firm Lane Clark Peacock specialising in pensions.)

My point is that it was a Lib-Dem minister’s policy to increase the state pension in line with earnings if they exceed inflation and Davey's proposal before that to raise the tax threshold in line with earnings to prevent fiscal drag. Worth bearing in mind to see what the party has to say about this when it publishes its election manifesto and what Labour has to say about it too.

No rabbit, no hat, no magician! Not likely to wow the audience, is it?

Smoke and mirrors, Good acting. Sit laughing at the oppositions’s response! Tell it as it isn’t and put your hopes on those who still want to believe in the Tory dream. Then wait to see results of the latest polls. Decision time do we leave with some respect or wait, pay a few more bills, then die a thousand deaths as the public go to the polls thinking “anyone but that lot”.

Isn't it crazy! I, who am not at all well off, and many other pensioners, will now start paying income tax because of the forthcoming rise in pensions.
They've gone mad, surely. It will lose them many votes.
By the way, I don't know how to go about starting to pay tax.
Do I have to send for a form, or are we going to be hearing from the tax office? Any advice please?

henetha

Isn't it crazy! I, who am not at all well off, and many other pensioners, will now start paying income tax because of the forthcoming rise in pensions.
They've gone mad, surely. It will lose them many votes.
By the way, I don't know how to go about starting to pay tax.
Do I have to send for a form, or are we going to be hearing from the tax office? Any advice please?

Unless you have income from anywhere other than pensions HMRC will do this for you and send it to you in your annual tax code notification

Grantanow

No rabbit, no hat, no magician! Not likely to wow the audience, is it?

Well it didn’t wow me! Neither did the constant jibes to the opposition and I could have done without all the shouting from all sides!

Thank you Cossy. I haven't paid tax for 26 years so it's all a mystery to me now.

henetha you can download Form R40 from the HMRC website which will enable you to complete a basic tax return.

The biggest losers are pensioners

Thanks very much, Susie42... I'm grateful for any advice.

Remember that if you receive interest on savings, the first £1000 is covered by the Personal Savings Allowance and you won’t have to pay tax on it. If your money is in an ISA, that is tax free anyway. Interest on that doesn’t count towards the £1000.

If someone only has state pension paid at rate no more than the new state pension rate from April 2024 and they have taxable savings that yield less than £1000 a year and pensions continue to go up by 8.5%, they wont be caught by fiscal drag (i.e. the freezing of the personal tax allowance) until 2026.