Longer term deferring

xylophone

Your FIL was in the army - some part of his service was between 1978 and 1997.

He was a member of a contracted out pension scheme.

Read the link in post 27 above in particular from the paragraph beginning

Nevertheless, there is a second form of adjustment made to your Armed Forces pension that could occur when your State Retirement pension kicks in; this is known as the Guaranteed Minimum Pension (GMP) adjustment........

He started drawing his army pension at age 55, ten years before his state pension age.

While he was under SPA, the Army Pension Scheme was responsible for pay inflation linked increases on the whole of his pension - however, once the SPA comes into payment, this changes as explained in the link.

One would have expected him to receive a letter from the pension administrator like this at post 33 here

https://forums.moneysavingexpert.com/discussion/4532605

However, your FIL chose not to draw his state pension - has the Pension Administrator simply been inflation linking the whole of the pension up to now because they assumed that he was not drawing his state pension? You may wish to check.

However, you or he should advise Equiniti that the State Pension is now in payment in case they have not been informed of this by the DWP - he should receive a letter like the one in post 33 in link to which I refer above.

The next point to check is why his tax code has been reduced to account for a state pension which he was not receiving - it would appear that some error has occurred and this really does need to be addressed.

eastcorkram

Choices letter turned up today

Option 1.

Extra pension of £202.00 per week, making weekly total of £345.32.

Option 2.

One off lump sum payment of £78,738.71. Plus increased weekly payment of £38.32. That's for the period 2001-2005.

Letter says they will take income tax off lump sum before payment. Asks how much % tax you expect to pay this year. 0, 20, 40, 45. I assume we put 20 for this?? I also assume they are talking about income this year, excluding this lump sum. Though this is not made very clear.
Also offered choice to postpone payment until next tax year. Not sure why anyone would do that with this sum.

xylophone

Letter says they will take income tax off lump sum before payment. Asks how much % tax you expect to pay this year. 0, 20, 40, 45. I assume we put 20 for this?? I also assume they are talking about income this year, excluding this lump sum. Though this is not made very clear.
Also offered choice to postpone payment until next tax year. Not sure why anyone would do that with this sum.

See http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-do-i-pay-my-state-pension-lump-sum

Suppose the pensioner knew that in the following tax year, his income would be within his tax allowance, or that in the following tax year he would be a standard rate tax payer rather than a higher rate tax payer.....

eastcorkram

xylophone wrote: »

See http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-do-i-pay-my-state-pension-lump-sum

Suppose the pensioner knew that in the following tax year, his income would be within his tax allowance, or that in the following tax year he would be a standard rate tax payer rather than a higher rate tax payer.....

Ah yes, that makes sense. Though in his case, whichever year it's paid in, the tax will be the same.

kidmugsy

eastcorkram wrote: »

Ah yes, that makes sense. Though in his case, whichever year it's paid in, the tax will be the same.

That could depend on the size of the rest of his income. How big is that?

kidmugsy

eastcorkram wrote: »

Option 2.

One off lump sum payment of £78,738.71. Plus increased weekly payment of £38.32. That's for the period 2001-2005.

Do you mean 2001-2015?

eastcorkram

kidmugsy wrote: »

Do you mean 2001-2015?

No. But I could have phrased it better!

The extra pension per week, of £38 is from the 2001-2005 period.

The lump sum payment, is for the period 2005-2016.

eastcorkram

kidmugsy wrote: »

That could depend on the size of the rest of his income. How big is that?

Not sure of the gross figure off the top of my head, but more than 14k forces pension, plus now of course, his state pension.
As I've explained earlier though, he's been getting taxed as though he was getting SP all the time.
That's next on the to do list!

xylophone

And have you contacted Equiniti?

badmemory

In theory this lump sum has already been taxed (annually via the pension). It will be interesting to see if HMRC refund the tax overpaid for all these years or adhere to the 4 complete years currently in force, especially as it was their mistake!