Labours plans re taxing pensions

[Catlover1705]

Does anyone know what these plans are please? Planning to retire next year at 60 with a moderate Local Government monthly pension and lump sum under 100k.

Pensions are already subject to tax.

State pension isn't taxed and is counted towards the tax free allowance but anything over the tax free allowance is.

You should be fine. It's possible that they will try to cap the tax free lump sum but that's tricky for public sector schemes where it's a separate element. If they do do something on the lump sum, I can't imagine they'd want to set it significantly lower than £100k and they'd need to avoid making the excess taxable at marginal rates...

Your total pension will be well below the lifetime allowance if that's reintroduced

Have to say that it REALLY makes me angry how successive governments (Labour, Coalition, Conservative) have messed about with pensions tax in a way that makes planning really hard... The most recent change actually simplified things considerably but Reeves has said she will take another look...

State pension isn’t taxed at source but is taxable like any other income:
https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/how-tax-collected-state-pension#:~:text=Example%3A%20tax%20on%20the%20state%20pension%20collected%20through%20PAYE&text=This%20is%20because%20the%20state,contact%20you%20about%20a%20refund.

I suspect the exact plans will be kept under wraps until after the election, because I doubt any changes would be a vote winner.

The only concern is they allow state pension to be taxed as it crosses thr threshold.

It isn’t. There has been lots of speculation about other changes to pensions, including the lifetime allowance.

What do you mean it isn't? If your state pension is more than the personal allowance then you will be liable for tax on it.

There is some chance that Labour would tax a lump sum of £100k IMO.

The monthly pension won't be impacted - pension income is the same as any other income. You pay income tax on it, once it exceeds your personal allowance.

My comment was in response to a poster saying the only concern re pensions was about the potential taxation of state pensions if it surpasses the personal allowance. There are other concerns about pensions in addition to that.

This annoys me so much as electionneering is giving the impression that pensioners don't pay tax. If you just have the state pension at the moment it is below the personal allowance so therefore isn't taxed. However, if you also have another pension as well the tax taken includes the state pension but it's all taken from your other pensions. Therefore most pensioners already pay tax,

The problem is that the successive freezes on personal allowance by the current government means that state pensions will (in a couple of years) rise to more than the personal allowance. Their is no mechanism to deduct tax from the state pension so it means pensioners on just a state pension will need to complete a tax return annually - this would be a shit show of their own making,

A large proportion of pensioners don’t pay income tax, so it could affect a lot of people. From the IFS

“Some important context for this: the share of those aged 65 and over who pay income tax has risen dramatically over time, from 36% in 1990–91 to 44% in 2000–01, 49% in 2010–11 and 62% in 2022–23.”

They haven't got any plans to tax pensions but if they end up being taxed, its because the Tories have frozen tax Thresholds for 5 years & Labour cannot afford to unfreeze them.

If the methods used to get to Labours "supposed" £2000 tax rise, over 4 years, are used on the Tories plans, we get to £3000 over 4 years.

This is also why so many people on middle incomes are now paying higher rate tax...... all down to the Tories.

So if your yearly pension income is above 12.5k, you'll pay tax on it regardless of who is in power.

Taxing pensions could mean getting rid of the 40% tax relief for high earners so everyone gets 20%.

Has the Labour Party actually said this? I don’t recall seeing anything from any party about changes to tax free lump sum

The only things I can find about pensions that might quite likely happen is the death tax, so they can't be passed on tax free through inheritance, and some toing and froing about the lifetime cap.

The reason the state pension may be taxed is because the triple-lock means that it is subject to arbitrary and unsustainable increases, meaning cuts to public services and higher taxes elsewhere to afford it.

It needs to be changed so that it increases in line with average earnings. There is no case for it to grow faster than average wages, which pay for it.

I repeat State Pension for the majority of recipients is already taxed and always has been - it is paid in full but the tax owing is added to your other income and taxed there.

This whole shit show is because the tax free allowance has been frozen and in a couple of years people on just state pensions with no other income will fall into the tax bands and at the moment the only way this can be paid is for pensioners in this position to complete annual tax returns. These are generally older pensioners who didn't have any form of employment pension

I wish people would stop saying that state penion is tax free - its not and never has been

FT today says that Rachel Reeves has ruled out reintroducing the Lifetime Allowance

OK, this has been a big worry for us, dh has an NHS pension (Dr). He has to plan his retirement carefully. The lifetime allowance cap was removed relatively recently, if it's introduced again it will cause chaos.

I’d be more worried that this means something else is in the offing for pensions as reintroducing this would have raised significant funds

Although tax isn’t deducted from the State Pension, it will still use up some of your tax-free personal allowance. In 2024/25 the standard tax-free personal allowance is £12,570, which means that if you receive the full new State Pension, you will have £1,067.60 (£12,570 less £11,502.40) of your personal allowance remaining for other taxable income streams, such as employment or a private or occupational pension.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/how-is-my-state-pension-taxed

Which is what I said - it's counted as part of your tax free personal allowance.* *If the SP is your sole income you won't pay tax on it.

A lot of older people who will be at the poorer end of the scale as they have no private pension will have to fill in tax returns in a couple of years if nothing is sorted out, that will probably not end well. Maybe HMRC will sort something out so tax is taken automatically like by PAYE. This is a Tory thing though which they have already done.

Personal allowence, the amount tax free under £100k before you pay tax is £12,500

the state pension is approximately £11.500 per annum

tbe Tory gov have frozen PA at £12,500 until 2028

if the state pension increases it will end up being taxed regardless of whether you have a personal pension scheme

if your income is over £12,500 then you’ll pay tax on the amount of £12.500 regardless of age - you ou could be a 2 year old film star or 97 year old pensioner

For many people, the state pension is already over the tax threshold.