A Taxing Question For The Oldies Here.

[Old_Geezer]

I was asked what seemed to be a simple question and could not answer it. As the issue will affect me some day, hopefully in the not too distant future, I thought I might ask here, especially as Google couldn't seem to match my question up with a suitable answer :-)

In today’s world we often work for a number of different employers though the course of our working lives, and thus may end up with multiple pensions all paying a little bit, but hopefully adding up to enough to live on.

When working, PAYE tends to sort the tax collection out (more or less) but what happens when retired ?

Do folk get demands from the tax man, and have to find the money to pay at the end of the year, and a hefty form to fill out to boot ? Or does the tax man demand a little from each pension provider before they send the net, even though none actually burst the personal allowance on their own ? Or does the tax man pick on one of the providers and demand all the owed tax from them ? What’s the deal here ?

Thanks.

[boxtops]

Exactly, C&J.

[New Judge]

"As an assumption your state pension will take up more or less all of your free pay allowance (£10k this year),"

Not quite. The basic State Pension is currently £113.10 per week (£5881 per annum). When you receive your State pension, because it forms part of your taxable pay but is paid free of tax your tax code (which for most people this year is 1000, representing £10,000 tax free allowance) will be reduced by your state pension sum (588, representing £5,881 if you receive the current maximum basic pension). This will make your tax code 412, meaning you can have £4,120 extra income before you pay tax. You can have this split between, say, an employer (if you are still working) and an occupational pension provider, or more than one pension provider. You need to tell HMRC how you want your code split but once you've done so they usually adjust each of your codes as the allowance changes each year.

It is fairly straightforward but you need to keep on top of it to ensure you pay the correct tax.

[boxtops]

I agree NJ - this is what they did for me last year when I was still working and drawing the pension.

One point re the suggestion of telling pension provider yourself about BR code - paying organisations won't accept the word of the individual re changes in tax codes, they don't take any action until they have the formal change of coding from HMRC.

[New Judge]

Yes quite so, boxtops. Employers and pension providers can only use codes provided to them by HMRC. If they have no code for you they use the code "BR" as a default meaning they deduct tax at the basic rate on all the cash they pay you. This means (a) you get no tax free allowance and (b) if your pay varies week to week or month to month the tax payable will not balance itself out as it would if they had a tax code for you.

[Old_Geezer]

Hmmm... as one gets older and it all starts to get too much, it seems then more than ever one needs to stay as sharp as a pin. Society doesn't seem to have that quite right somehow.

[boxtops]

It keeps the old grey matter in trim, O_G, keeping tabs on the taxman :-)

[furrypusscat]

I have 3 small pensions, 2 private of which are purchased annuities with the 3rd a works pension rising each year and I wrote to tax office to split the annual tax allowance between the three ensuring that the divided tax free allowance just covered the annual pensions which remain static leaving the larger amount to cover the pension which increases annually and which eventually my state pension tax will be deducted from. Hope that makes sense.

[dancecaller]

My husband sometimes gets a self assessment form at the end of the year, sometimes they just send a tax code letter. He only has 1 private pension + state OAP, but at the end of the year it still doesn't quite work out right and they adjust the code so that the small amount owed is repaid next year.

[Old_Geezer]

Latest seems to be that the main pension is taking a lot of tax, and when called and asked says they are taking no personal allowance into account; and one must talk to the folk who actually sort out the money (which if course these days is subcontracted away from the pension providing firm).

One calls them and gets "passed from pillar to post" eventually ending up with the person one started with; at which point one is informed their computer system is down and can one do it all again tomorrow.

Gosh I'm so looking forward to when it is my turn to undergo all this.

[toola]

The taxman takes it from your pension suppliers.

[boxtops]

O-G, if you are still looking at this thread - if it helps, I gathered all my P60s from the end of last tax year, showing gross, code, tax paid, and put them all into a spreadsheet so we could see the total amounts involved across all income strands. That way, when I spoke to the taxman and he was looking at my on-line returns his end, we could be, as it were, "singing from the same hymn sheet".