around one million additional pensioners<\/a> are expected to be brought into the tax system, the Government said many will pay only small amounts whilst others won\u2019t have to pay at all. The OBR estimates the measure will raise just \u00a3100m a year by 2030.<\/p>\nWe look at who can be exempted from paying and how it will work. <\/p>\n
How could exempting state pension income from tax work in practice?<\/p>\n
The Government has indicated that individuals whose only income is the state pension will not need to pay any income tax on it during this Parliament.<\/p>\n
But experts say there are still significant questions that remain about how this will work in practice and how the Government will ensure it is fair on other pensioners and working people.<\/p>\n
Rachel Vahey, head of public policy at AJ Bell, said: \u201cWe don\u2019t know exactly how the Government is going to tackle this, but it has suggested anyone just taking the state pension won\u2019t have to do a self-assessment or simple assessment and won\u2019t be taxed.<\/p>\n
\u201cThat\u2019s all the information we have at this point, but the Government has suggested it will come back with more detail later this year. In doing that, they will have to consider what the most fair solution really is.<\/p>\n
\u201cThere are already people who earn over the personal allowance just through state pension income because they get additional bits on top, such as through state earnings-related pension scheme\u00a0(Serps), and they are currently taxed and I imagine will carry on being taxed, which seems unfair,\u201d she said.<\/p>\n
Vahey suggested there are several steps the Government could take.<\/p>\n
\u201cInstead of just excluding people solely getting state pension income, the Government could introduce a cliff-edge for all pension income, or they could look at a phased tax approach instead for greater fairness.<\/p>\n
\u201cAnother solution would be to bring in a separate, higher personal allowance for pensioners. But that feels like a difficult solution and an unfair one in the eyes of working people.<\/p>\n
\u201cWhatever is introduced could see some really unfair situations transpire. For example, if the Government just exempts those solely earning state pension, someone earning the exact same income but through workplace pensions would get taxed, which is clearly unfair.<\/p>\n
\u201cThe Government needs to think hard about how to take this forward.\u201d<\/p>\n
Steve Webb, partner at consultancy LCP, said the Government needs to consider whether to exempt people who are already being taxed on their state pension income because it is over the personal allowance.<\/p>\n
You may get a higher state pension if you receive large additional state pension through the old state pension system \u2013 for people who reached state pension age before April 2016 \u2013 or if you defer taking your state pension for several years.<\/p>\n
\u201cThe Government has a clear presentation problem when the new state pension goes above the tax threshold in 2027, but millions of pensioners [on the old state pension] already get state pensions above the tax threshold and nothing has so far been done for them,\u201d Webb said.<\/p>\n
\u201cSo there is a real risk that pensioners on the new [state pension] system will be more favourably treated. It will be incredibly difficult for the Treasury to come up with something that is workable and fair.\u201d<\/p>\n
David Brooks, head of policy at consultancy Broadstone, said that ultimately, exempting any pension income from being taxed risks looking unfair to younger generations.<\/p>\n
\u201cWhile we are still waiting for clarity on how the Treasury intends to exempt those whose sole income is the state pension, the updated modelling underlines the impact of the triple lock pushing the state pension above the frozen personal allowance,\u201d he said.<\/p>\n
\u201cThis comes at a time of heightened scrutiny around intergenerational fairness, with student loans bursting into the political spotlight while the future of the triple lock remains a hotly debated issue. Although the fiscal gains for the Treasury may be relatively modest, the optics are significant.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The Government says people who pass the personal allowance on their state pension alone will not pay income…\n","protected":false},"author":2,"featured_media":457605,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,15635,4178,4174,4175,1445,44546,56,54,55],"class_list":["post-457604","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-income-tax","tag-pensions","tag-personal-finance","tag-personalfinance","tag-rachel-reeves","tag-spring-statement","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/457604","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=457604"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/457604\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/457605"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=457604"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=457604"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=457604"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}