I started this morning with a a simple tale of a senior lawyer finding his father’s pensions laid out before him
It being self assessment time, it was good to see how simple pension affairs could be for those of yester year.
But we’ve moved on – how do we do it today?
If I was comforted by this , it wasn’t for long, for the next post was former DWP actuary and GAD supremo Andy Young who hinted that things weren’t quite that easy, he doesn’t sound unemployed to me.
He has , it appears, been following the rule-book on how he, a rather elderly first time pensioner (you can defer your pensions but not without tax consequences if appears).
His predicament (he is baffled by what state pension he should declare for tax assessment) is not just baffling for him.
Actually, none of these bright and experienced people is quite sure what assessment is done at source and what by adjustment through self-assessment. Which I find worrying.
Andrew and Peter T and Peter C all have different answers to the same question!
I find it even more worrying , to a point that I have to find it hilarious, that others are finding it just as hard. This is from a long email asking me for my thoughts (expletives sanitized),
I am doing my tax return for 2024-25.
When you log in my work pension is preloaded. But not my state pension. Why the F*** is this?I think 2024-25 was the first year I received my state pension. As I deferred. But I assume this is standard as the text on the forms say what to do.
So what is that? They say
‘You can use the
“About the general increase in benefits” letter that the Pension Service sent you before the start of the 2024 to 2025 financial year. Add up the amount you were entitled to receive from 6 April 2024 to 5 April 2025 and put the total in this box.
For tax purposes, the correct amount is always the figure of weekly entitlement, not the number of payments you received, so this will be the first week at the old weekly pension rate, plus 51 weeks at the new weekly pension rate’.
Then a classic.
“Note. If you reached SPA before 6 April 2010 and 6 April 2024 falls on a Saturday, Sunday or Monday, the amount should be calculated as 52 times the new rate.”
Then a para in case you didn’t get the state pension for the whole year or the amount changed.
And then.
“Add up your amounts carefully.”
(A bit ironic that after all the trouble I had getting my SP!).
What the F***
Can’t they do it? How do older people do it?
There aren’t many things that are simple about pensions but I suspect that self assessment for those like me beyond a SERPS pension and taking my pension at my state pension age will be simpler.
But then of course there’s the triple lock to tip those whose only taxable income is from the state into taxation. That is one I hope we can get paid in a simplified way.
I ask you to scroll back up to the start of his pension and remember how pensions were originally designed. That pension was designed to last in a membership and pass book. A leather case, a steel popper and paper printed ready for signature!
It’s no big deal, I think.
If you submit your self-assessment tax return by the 31 October deadline, HMRC will calculate the tax you owe. This allows you to know your final liability well before the 31 January payment deadline.
If you leave it till the end of January to submit and you get the State pension bit wrong, then they will assess you for any extra tax, which you should then pay ASAP to stop a few pounds of penalties accumulating.
HMRC’s app is a good way to stay on top of your self-assessment liabilities.
It is worse than described. Sometimes the amount for other pensions is pre-populated in Self Assessment returns and sometimes it isn’t. I don’t know what controls this. Perhaps the date you start completing the return or perhaps HMRC change their processes each year.
It could all be made simpler by the government providing P60s for the state pension, plus guaranteeing to pre-populate all pension payments on returns if the Self Assessment is started after a particular date each year.
In my experience (my state pension is way above the tax threshold) the answers to Andy’s three questions are:
1. The state pension is subject to income tax but is not part of the PAYE system. The standard way round this is for HMRC to allocate the personal allowance to the state pension and to claim the tax due on any excess by adjusting the code on one other source of taxable income. You get a notice of coding, but otherwise this isn’t explained to people. If you don’t have another source of income, or it’s not big enough to get all the tax you owe on the state pension, you get the dreaded brown envelope. They don’t take more than 50% of the other income.
2&3. The DWP have always told HMRC the amount of my state pension. Not surprisingly the figure is the state pension received in the tax year.
I’ve just been doing the calculations for my wife and myself and it is a complete pain. The 51 weeks at the new rate and the 1 week at the old rate is the correct methodology according to the self-assessment guidelines, but you need a spreadsheet to do it accurately!
This would have made my dad smile Henry, he was never one to sit on his opinions, like yourself! Many thanks. Graeme