A pensions expert has called on Jeremy Hunt to increase the personal allowance as many pensioners face rising tax bills from HMRC.
Experts at wealth firm St. James’s Place have said there are several tax policies the Chancellor should reform to help pensioners and pension savers.
Claire Trott, divisional director of Retirement and Holistic Planning, told Express.co.uk: “The frozen personal allowance of £12,570 will soon mean that more and more pensioners will be forced to pay additional tax or be pushed into doing a tax return.
“State pensions are paid gross and if they have private pension income then the tax paid on these will be adjusted to take account of any of the personal allowance used by the state pension payments.
“So, any increase in the state pension, although welcome, will have less impact on those who are receiving other pension payments from their hard saved income through their lifetimes because it will just mean more of that income is taxed, or even push them into a higher rate of taxation.
“It seems right that this should be increased in line with wages to ensure we are not penalising individuals year after year for increasing their income and driving growth.”
The full new state pension is currently £203.85 a week, or £10,600.20 a year. Payment are increasing to £221.20 a week, or £11,502.40, from April, meaning the full amount will be just over £1,000 a year away from being subject to income tax, under the current personal allowance.
Ms Trott said the Chancellor said there are other complexities the tax system that should be fixed to make it easier for families to plan for the future.
She said one such issues is the tapering of the personal allowance in England and Wales, which means those earning between £100,000 and £125,140 can end up paying 60 percent tax.
A person earning £100,000 gets a reduced personal allowance which tapers off as their income increases, at a rate of £1 for every £2 they earn above this amount.
Ms Trott said the rules are “poorly understood” and can put people off taking on higher paying roles as they may think the extra work is not worth the pay.
She said: “It also creates an issue should any increases in the personal allowance be introduced, if the personal allowance were increased then some of this taper would be in the 45 percent tax band causing more confusion.”
The tax expert also said the High Income Child Benefit charge should be removed or simplified. The policy means when one individual in a claimant household earns more than £50,000, the household starts to pay back part of their claim.
Ms Trott said: “This can have a real impact on those returning to work, or which parent does what hours.”
Pensions lifetime allowance
With the pensions lifetime allowance being removed in April, some experts have asked for more clarity on how the change will be implemented in the Budget.
Chris Rudden, head of Investment Consultants UK at Moneyfarm, said: “HMRC has responded to industry criticism and provided further clarification on a number of the technical details including the application of transitional tax-free amount certificates and confirmed that the majority of members should not need to apply for one.
“But further clarity is needed to ensure that pension savers aren’t put in a worse tax position, but the rules don’t make sense, so perhaps we will see some common sense from HMRC or the Government.”
“However, with a general election on the horizon and the Labour Party leading in the polls, the question now arises as to whether a Labour government would, as they’ve indicated, reverse the change completely or reform any of the measures announced in the Spring 2023 Budget creating further confusion for pension savers.”
Chris Eastwood, co-founder at Penfold, said: “The abolition of the LTA represents a significant departure from previous pension tax policies. While this move may offer temporary relief for savers, the potential reinstatement by future governments introduces a level of uncertainty that can undermine long-term retirement planning.
“The pension system should reward savers, support businesses, and adapt to individual needs without the shadow of retroactive changes.
“It’s crucial that those who have diligently saved for their retirement are not unfairly penalised, and that younger or lower-income individuals are incentivised to build their pension pots.”
However, some analysts are predicting there will not be announcements about the pensions allowances in the Chancellor’s statement.
Maria Dawson, head of Payroll and Compliance at Sapphire, said: “Allowances shift in every new Budget announcement, but there has been little buzz around the money purchase annual allowance, or the pension LTA and annual allowance, in this year’s run-up.
“It seems unlikely that any changes will be announced in this area, but the Budget is often surprising. Other financial issues appear to be more pressing on the Chancellor’s agenda, so we will have to wait and see what lies in store.”
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