First Defined Pension Payment (2.5 months) high tax ?

Tiggy777

Hi all

Ready hope someone could please help and shed some light on my issue (thanks)

I am due to received my first local government pension on 29 July 2022 (aged 60) and have just received the breakdown.

My application to have my pension paid was lost by my employer so the payment cover the period 13 May 2022 to 29 July 2022 so basically about two and a half months.

The gross payment is £6,302.59 and I have been taxed £1473.26.  T

This seems high to me based on my pension being £28,945 pa so as taxable income of approx. 16,375 (28,945 - 12,570 personal allowance) so working out my tax per month = 16,375 x 20% = 3275/12 = £272.91 per month. (so two and half months would be approx. £680 rather than £1473.26

I did give my employer my P45 which showed my tax code 1257L but looking at the Tax code on the advice note its shown as 1257L M1.

I am trying to work out why this has occurred and what I need to go to get it address i.e. talk to Inland Revenue or Employer.

Would appreciate any ideas or advice.

Thank you very much for your time.

Regards

Tiggy

dunstonh

The first payment on a pension is usually higher on tax as it's treated as month one earnings and given a tax code that reflects that. HMRC usually notify the administrator of the correct tax code to use by month two, and the excess tax will correct itself over the remainder of the tax year.

This is the same way employment PAYE works.   Both go through payroll.  Both get payslips and P60s etc.

I am trying to work out why this has occurred and what I need to go to get it address i.e. talk to Inland Revenue or Employer.

Month 1 earnings means what you earned this month is the expectation of what you will earn for the remainder of the tax year.  So, that tax you on that expectation.  In your case, it won't be.   As you get each monthly payment thereafter, it will average out the figure over the remaining period in the tax year, and you will get the tax back with March 2023 being the one that brings you fully back in line with what it should be.

You don't need to do anything; there is nothing wrong here.   

I did give my employer my P45 which showed my tax code 12570L

Looks like you have added an extra zero on that.  1257L would be the figure on the old one. A 12570L code would be very nice!

p00hsticks

The problem is that the pension payroll is taking £6302.59 as a monthly payment. So not only do you just have one months worth of tax allowance to offset against it, it probably means that at least some of the payment is subject to higher rate tax.

The amount of tax deducted is spot on if this was the case.

Usually in such circunstances this would gradually correct itself over successive payments, but the fact that you have a 'M1' in your tax code means that each month is treated individually with no reference to what's been paid before or after.

Tiggy777

Thank you very much dunstonh and pOOsticks your replies are really helpful.
Just unfortunate that things were delayed in terms of my first payment !
Thanks again
Kind regards
Tiggy

Dazed_and_C0nfused

It could be that sufficient tax has been deducted for you to safely go back onto a cumulative tax code for your next payment.

To check this you would need to post your

pay and tax figures from your P45, the expected pension payment due (before tax) next month and the date this will be paid.

Tiggy777

Dazed_and_C0nfused said:

It could be that sufficient tax has been deducted for you to safely go back onto a cumulative tax code for your next payment.

To check this you would need to post your

pay and tax figures from your P45, the expected pension payment due (before tax) next month and the date this will be paid.

Thank you for the reply

I left work on 9 April 2021 and haven't work since so P45 was issued in 2021/22.  I applied to have my pension paid from 13 May 2022.

My monthly pension will be £2,412.10 and the next payment will be on 31 August 2022.

Thank you very much for your time

Regards

Tiggy

molerat

Tiggy777 said:

Dazed_and_C0nfused said:

It could be that sufficient tax has been deducted for you to safely go back onto a cumulative tax code for your next payment.

To check this you would need to post your

pay and tax figures from your P45, the expected pension payment due (before tax) next month and the date this will be paid.

Thank you for the reply

I left work on 9 April 2021 and haven't work since so P45 was issued in 2021/22.  I applied to have my pension paid from 13 May 2022.

My monthly pension will be £2,412.10 and the next payment will be on 31 August 2022.

Thank you very much for your time

Regards

Tiggy

In that case 1257LM1 will be the correct code for the first payment - pension providers have to use that code until told otherwise.  HMRC will be on the case pretty sharpish and have possibly already issued the new code to the pension payer (check your on line tax account) so the next payment will be correct. At the August payment total tax due year to date will be £694.60 so you will get a tax adjustment of (1473.26 - 694.60) £778.66 refunded to that payment and from Sept onwards pay £272.80 tax per month.