David Luxton - DGS
David considers the impact of recent taxation changes and government proposals to inspect personal bank accounts.
As March finally arrives after the long, grey, cold winter, we start to see the first signs of spring, with lighter evenings, green shoots and a feeling of renewed optimism after the last bite of winter. So, apart from the lighter evenings and better weather what is there to be optimistic about?
Well for a start, civil service pensions will rise by 6.7% from 8 April in line with the Consumer Prices Index at September last year (for pensions that have been in payment for at least 12 months). State pensions will rise by 8.5%, also from 8 April, in line with average earnings growth between May and July 2023, under the triple-lock arrangement (up by the higher of inflation, earnings growth or 2.5%).
The basic state pension (pre-April 2016) will rise from £156.20 to £169.50 per week (£8,814 pa); the new state pension (from April 2016) will rise from £203.85 to £221.20 per week (£11,502pa) at the full rate. Any earnings-related or additional pension in payment will rise by 6.7% in line with the September inflation figure.
While these increases are welcome, many pensioners will now find this will take more of their pension further above the basic 20% personal tax threshold of £12,570. That has remained frozen since April 2021, and is likely to stay frozen for the next five years, meaning that more pension income will be subject to tax.
So, as an example, a retired civil servant on a £10,000 a year pension, plus the basic (pre-2016) state pension of £8,122 a year, will from 8 April receive a £670 annual increase in their civil service pension plus £690 a year in their state pension. However, the total amount of pension to be taxed in the new tax year will rise from £5,552 to £6,912, so a fifth of the £1,361 pension rise will be taken in tax.
Had the personal tax allowance risen in line with inflation since 2021 it would have been £14,300 by April – meaning the pensioner in this example would have kept £346 more of their pension increase.
This tax-take will increase further each year if the tax thresholds remain frozen until 2028… unless there is a surprise announcement in the Budget on 6 March.
Spring Budget surprises?
We will be hearing a lot more about tax over the next few weeks after the Spring Budget on 6 March.
There is much talk about tax cuts, while conveniently side-stepping the impact of frozen tax thresholds taking more tax by stealth.
Just as important for pensioners will be announcements about the spending plans and commitments for the NHS and social care. The main political parties are reluctant to detail spending plans before the general election… So let’s try and enjoy the spring and summer months first! Access to bank accounts Members will have read in the press about proposed new legislation that would give the government powers to access the personal bank details of anyone in receipt of the state pension.
The CSPA and our partner organisations in Later Life Ambitions have echoed concerns raised by Sir Stephen Timms MP about government plans to allow the inspection of pensioners’ bank accounts, as set out in the Data Protection and Digital Information Bill currently going through Parliament.
Sir Stephen spoke in a Commons debate in November to criticise wide-ranging powers that government amendments to the Bill would give ministers to inspect the bank accounts of people on social security and those in receipt of the state pension. A key concern is that the powers could be used to means-test the state pension and other universal pensioner benefits.
The stated purpose of the Data Protection and Digital Information Bill is to create a new regime for digital rights and data protection in the UK.
Ahead of its third reading in Parliament, the government suddenly proposed amendments including a schedule and clause that would grant the secretary of state the power to require banks, or other financial institutions, to provide personal data for anyone in receipt of benefits, including state pensions.
The government argues that the powers to inspect social security claimants’ bank accounts are to reduce fraud and error. However, when questioned in the Commons, pensions minister Mel Stride said: “I agree, to the extent that levels of fraud in state pensions are currently nearly zero, the power is not needed in that case. However, the government [wishes] to retain the option should the position change in the future.”
Lord Sikka commented in a House of Lords debate on the Bill on 19 December: “Why [does] the government want to snoop on the bank accounts of pensioners when there is hardly any fraud? Do they have some plan to treat the state pension as a means-tested benefit?”
He also asked why the government classified the state pension as a “benefit” when the amount paid to a pensioner is determined by the number of years of National Insurance contributions?
The CSPA is working with LLA partners and parliamentary advisers at Connect, and talking directly to MPs and peers, to seek amendments to the Bill to safeguard the privacy of pensioners’ bank accounts. We will update members on this important issue through the website and e-newsletters, as well as The Pensioner.
This article was first published in the Spring edition of The Pensioner – the magazine and the article can be read in full here.