DWP update on plan to take money from state pension | Personal Finance | Finance
The Treasury has responded to reports that money could be taken from state pensions before it is added to recipients’ accounts. It was suggested that income tax could be deducted from the payment before the cash payment was made. This is similar to the PAYE system taking money from wages. This would be a major change to the current pension system, as currently pensioners pay their debts to the government through HMRC after receiving their taxable money, such as wages or private pension earnings.
Officials are allegedly considering how the overhaul would work, with an option that includes bringing in a private company to manage the system. Currently the government collects tax owed on state pensions by changing the tax laws for those who are employed or have private pensions, either through self-assessment declarations or through simple assessment. The new way of doing things will involve applying the standard 20% basic rate deduction on all state pension payments.
It was reported that the differences arising from retirees’ other income sources will be closed at the end of the tax year.
“There have been no changes to the tax treatment of the state pension,” a Government spokesman said. Great Britain News.
They added: “The government regularly carries out surveys to better understand pensioners’ experiences of the tax system.”
It comes as the state pension’s triple lock is being questioned. There have been calls for Andy Burnham, the likely next prime minister, to scrap it to fund tax cuts for families, but he has committed to keeping the guarantee.
Maike Currie, vice-president of personal finance at PensionBee, said: “It’s important not to present this as a choice between supporting retirees and supporting young people. Rising youth unemployment and the increasing number of young people not in education, employment or training are complex and structural challenges that require targeted solutions.
“Pensioners need protection against inflation, especially those who rely heavily on state pensions, so any reform to the triple lock must be carefully considered and accompanied by a clear, credible alternative that gives people the confidence to plan for the future.”
He added: “The ongoing debate over the triple lock highlights an important fact: pension policy can and does change. “There have been reforms to the state pension age, National Insurance rules and tax breaks over the years.
“While the triple lock remains in place today, no government can guarantee what the system will look like decades from now. The state pension should be seen as an important foundation, but it is your private pension that provides greater choice, flexibility and financial resilience in later life.”
