Latest news with #SirSteveWebb
The Independent
21-05-2025
- Business
- The Independent
Around 1m pensioners paying income tax at 40% or above
Around one million pensioners are paying income tax at rates of 40% or above, according to figures obtained from HM Revenue and Customs (HMRC). The total number of people who have reached state pension age and are paying any income tax at all has risen by around two million in four years, from 6.7 million in 2021-22 to 8.8 million in 2025-26, according to the data, obtained following a freedom of information (FOI) request by Sir Steve Webb, a former pensions minister. Over the same period, the number of people at state pension age or older who are paying the tax at 40% or above has doubled – from around 494,000 in 2021-22 to around 1,028,000 this year. The total includes those paying income tax at a higher or an additional rate. Sir Steve, who is now a partner at pension consultants LCP (Lane Clark & Peacock) said the freeze on income tax thresholds, significant state pension rises and other inflation-linked pensions increases are factors behind the jump in tax-paying pensioners. He also highlighted how being a higher rate taxpayer can mean more tax to be paid on other forms of income. For example, basic rate taxpayers can receive up to £1,000 of interest on savings and not have to pay tax on it, under the annual personal savings allowance, while higher rate taxpayers have a £500 allowance, and for additional rate taxpayers the personal savings allowance is zero. Sir Steve said that moving up an income tax bracket could also have implications for the amount of capital gains tax some people need to pay. Looking ahead, Sir Steve said the number of pensioners paying higher rates of tax is poised to increase further as personal allowances and tax thresholds remain frozen. But he said the rate of increase is likely to be slower than in recent years, as state pension age will be gradually rising from 66 to 67 between 2026 and 2028. Steve Webb, partner at pension consultants LCP, said: 'There has been a significant increase in the number of pensioners paying income tax at all rates, but the rise has been greatest in the numbers paying income tax at the higher rates. 'This has more than doubled from under half a million four years ago to over a million now. Not only does this mean more tax on things like income from state and company pensions, it also means these pensioners are paying more tax on their savings, as their personal savings allowance is cut, and a higher rate of capital gains tax – a 'triple whammy'. 'The higher rate threshold has become a real cliff-edge over which growing numbers of pensioners are falling.' A Treasury spokesperson said: 'We are committed to help our pensioners live their lives with dignity and respect, which is why we have frozen fuel duty and increased the state pension to leave pensioner couples up to £88 better off a month. 'Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this Parliament.'
Daily Mail
20-05-2025
- Business
- Daily Mail
More than one million pensioners now pay higher rate income tax as frozen thresholds continue to bite
More than one million pensioners are now paying higher rate income tax as frozen thresholds continue to bite, new figures from HM Revenue & Customs reveal. Some 904,000 people of state pension age or older are now paying 40 per cent income tax while 124,000 are paying 45 per cent, according to a freedom of information request obtained by former pensions minister Sir Steve Webb. While tax thresholds remain frozen, modest earners have been dragged into higher tax bands in a process known as fiscal drag. This has caused the number of pensioners paying a higher rate of income tax to double in just four years, the data reveals. Basic rate taxpayers must pay 20 per cent in tax on earnings over the £12,570 tax-free personal allowance. While higher rate taxpayers lose 40 per cent of an income between £50,271 and £125,140. Additional rate taxpayers must pay 45 per cent on earnings more than £125,140. State pension payments increase by the highest of inflation, earnings growth or 2.5 per cent under the triple lock mechanism – and the full, new state pension was hiked to £11,973 this April. This means pensioners withdrawing just a small income from a personal pension on top of the full state pension are now paying basic rate income tax – leading to 8.8 million now paying income tax compared to 6.7million four years ago. Thresholds are due to move in line with inflation from 2028 but vulnerable retirees relying on the state pension alone could be dragged into paying income tax as soon as next year. Sir Steve, now a partner at consultancy LCP, says the effects of frozen thresholds are not just limited to income tax but are a 'triple whammy' for higher and additional rate taxpayers. He adds: 'Not only does this mean more tax on income from state and company pensions, it also means pensioners are paying more tax on their savings as their personal savings allowance is cut.' While basic rate taxpayers have a personal savings allowance of £1,000 – the amount of interest that can be earned on savings before paying tax – higher rate taxpayers get just £500. Those in the additional rate band have none at all. This means a pensioner with an income of £50,271 – just £1 over the basic rate thresholds – will have their tax-free savings allowance slashed in half. For example, on £1,000 savings interest they will now have to pay £200 to the taxman.
Telegraph
15-05-2025
- Business
- Telegraph
Retirees wrongly denied £450m in state pensions
Retirees were underpaid nearly half a billion pounds in state pensions last year, official figures show. Six in 100 state pension claims were underpaid – an increase of 20pc since the previous tax year – working out at an average underpayment of £5,770, figures show. The Department for Work and Pensions (DWP) also overpaid an extra £90m as a result of its own errors last year compared to the previous year, paying out £110m too much. In order to claim the 'full' new state pension, currently £11,973, a taxpayer must have accrued 35 years of National Insurance contributions and be older than the current state pension age of 66. Those with more than 10 years' of contributions get a reduced state pension. The amount spent on the state pension increased by nearly 15pc last year, rising from £123.9bn to £142bn. The increase in spending was driven by the triple lock, which guarantees a rise of at least 2.5pc a year in payments. In April, payments increased by 4.1pc, to £230.25 a week for the new state pension. Former pensions minister, Sir Steve Webb, partner at pension consultants LCP, said: 'It is shocking that six in 100 state pension claims are still being underpaid despite years of work to correct historic errors. 'After a lifetime of work and contributions, people have a right to expect to be paid the right amount of state pension.' Sir Steve said that taxpayers struggle to know how much they are owed, 'so it's even more important that DWP gets it right'. He added: 'DWP clearly needs to step up the amount of time spent checking cases and contacting those who may have been underpaid so that this problem can be brought under control.' In the last four years, more than £800m in state pension arrears have been paid out to more than 100,000 pensioners by the department. Jon Greer, of wealth manager Quilter, said: 'That includes many women who were impacted by historical issues with Home Responsibilities Protection, a now-defunct mechanism designed to protect the pensions of those with caring responsibilities. 'These legacy issues continue to plague the system despite a correction programme being in place.' Between 1978 and 2010, those claiming child benefit for children under 16 or those with support for looking after a sick or disabled person, could top up their state pension entitlement with Home Responsibilities Protection. But state pensions have been consistently underpaid to those who were paid child benefit before May 2000, and didn't provide their National Insurance number when they claimed it. This meant their records weren't properly updated, and they were underpaid when they came to retire. Overpayments of pension credit, which is available to low-income pensioners, also hit a record high of 10.3pc, after Chancellor Rachel Reeves scrapped the winter fuel allowance for all but those who claimed the benefit. The overpayments cost the taxpayer £610m a year, with fraud accounting for £270m of the total. Underpayments of pension credit came to just £70m, but nearly 70pc of this was due to administrative failings. Mrs Reeves removed up to £300 from nearly 10 million pensioners last year when she scrapped the winter fuel payment, in an effort to save the Treasury £1.3bn. This led tens of thousands of the poorest pensioners to apply for pension credit, in a bid to keep the winter fuel allowance. In the eight weeks after the announcement in July 2024, there were 74,400 applications for the benefit, an increase of 152pc on the eight weeks before.
