Tax refund from pension lump sum

Please_explain...

Hello,

This is probably embarrassingly basic but I took a [partial] lump sum from a SIPP in March this year and wondered whether the overpaid tax will be refunded automatically or do I have to apply for a refund? I took a lump sum from another pension early in the tax year and applied for a refund on that straight away rather than wait until the year end but I believe I can just wait for HRMC to realise they owe me a refund this time. Is that right?

BTW, the emergency tax code is dim at any time but where's the logic in basing your tax on the assumption that you will take an equal payment each month throughout the tax year when the first payment is in the last month of the tax year and is clearly going to be the last/only payment of the year? Why on earth can't the provider ask HMRC for an up-to-date code? Surely it would save everyone a lot of work.

Anyway... While I'm here... I can't get an on line state pension statement as I don't have the necessary documentation but I read on the Gov.uk site that the new pension will compare the old and new systems and the starting amount will be the higher of the two. Fair enough. But then there's a comment about possibly reducing both figures if you've been contracted out. Does this mean that the figure for the old pension already included such a reduction [presumably in that my S2P will be next to nothing because I was contracted out], or will the quote I was able to get last year be reduced? I'm sure they say that nobody will get less than they would have under the old arrangement [if they have 10+ years' NICs] so I assume I can count on my pension not being less than I was expecting... can I? I know the quote under the new rules will be reduced by my having been contracted out and with only 30 years' NICs will be lower than last year's quote under the old system, so I am hoping that will not be reduced too.

Thanks in advance.

jamesd

If you were contracted out into a workplace defined benefit pension like final salary there will be a reduction in your additional state pension because there will be reduced effect from your SERPS and more recently S2P contributions.

If you were contracted out into a personal pension there may be no deduction because for much of the time this was taken into account just by not increasing your additional state pension amount. But not for the whole time when personal pensions were available.

The old rules calculation will usually work out better for a person who was contracted out.

Depending on how much longer you continue to work or pay voluntary NI contributions you might or might not end up above the flat rate level. If you did lots of high income work and were contracted out for a relatively short time you may already be above that even with a deduction.

From that you may correctly have gathered that we can't tell you much that is specific because we don't know enough about you situation.

digannio

I would always make a claim immediately for any overpaid tax rather than leave it in the lap of HMRC to get round to. For a start, they are understaffed and overworked and you may well be at the end of a very long queue, so it could take some time to sort you out if you leave it to them and nothing is likely to happen until after the end of the tax year. If you apply now, they will act on it. I would guess you probably need the money now more than they do.

As regards your emergency tax code, the best thing you can do is to call HMRC and try to get it put right on the phone. You will have to wait a while to get through but you may well be able to get it put right if you explain your position. A SIPP provider won't contact HMRC to find out your correct tax code but will adjust it when HMRC contact them. You can instigate that.

Please_explain...

I didn't think my personal situation would alter the case as it was a general enquiry. I won't earn any more NICs but intend to buy some. My pension under either old and new systems will be well below the basic new level but I think the old one will be higher at a little under £130. All I wanted to know was whether last year's quote was "safe" and not liable to any reduction.

Please_explain...

Thanks Digannio. It's not a huge amount of money and it looks as if automatic refunds should be sent by July which I could live with. I just wasn't completely sure I would get an automatic refund or whether I absolutely HAD to apply.


You say "and nothing is likely to happen until after the end of the tax year"... As we have just entered a new tax year I figured this would not be a long wait, and the reason I applied last year when it would have been many months until HMRC looked at it.

xylophone

Why not apply by post for an accurate NSP statement after September this year?

https://www.gov.uk/government/publications/application-for-a-state-pension-statement

nothing is likely to happen until after the end of the tax year.

The OP took the payment in March so the tax year in question (2015-16) has ended.

Please_explain...

xylophone wrote: »

Why not apply by post for an accurate NSP statement after September this year?

https://www.gov.uk/government/publications/application-for-a-state-pension-statement


The OP took the payment in March so the tax year in question (2015-16) has ended.

I keep being told that I will soon being able to register on line and am foolish enough to believe them. Once registered I can go back any time rather than have to write again and again. And have you seen the price of a stamp!!!

digannio

Yes, I see. Personally, from my dealings with HMRC over the past year, I would still put the claim in. To put it mildly, things are not running as smoothly as they might be.

xylophone

And have you seen the price of a stamp!!!

Those lump sums must have been really tiny...:)

Please_explain...

digannio wrote: »

Yes, I see. Personally, from my dealings with HMRC over the past year, I would still put the claim in. To put it mildly, things are not running as smoothly as they might be.

Cheers again. You're probably right, though I seem to remember that getting the refund last time took a fair while so July without any effort seems quite reasonable, as long as it happens. And I don't even have a printer to print out the form...

Please_explain...

xylophone wrote: »

Those lump sums must have been really tiny...:)

The second one - the one I'm due some money back on - was tiny by the standards of MSE users, I was just using the last of my tax allowance for the year.


Sorry, I had a sense of humour failure! But surely it's in an MSE's genes not to use a stamp if it can be avoided.