Pension Back Payments

Francis42

I have claimed pension back payments going back to the pension start date in 2004. The annual pension for each year is less than 1,000 pounds. I had no earning in the years since the pension start date in 2004. Can someone please kindly advise if the accumulation of the back payments paid in a lump sum today, would be subject to taxation given the annual sum in each year,  is less than the corresponding tax free allowance in each of those years - ie if i would've paid no tax annually since 2004 - should the accumulation of back payments be subject to tax? I would be grateful of any links you can supply with your answer as i am in dispute with my pension provider. Thanks in advance.

dunstonh

We need more detail.

What type of pension?
Why are they being backdated? (reason is important)

You mention pension provider which suggests it is a defined contribution scheme.    These would not have any specific date on which to pay out.  You get to choose as long as its over age 55.  So, they wouldn't backdate as the fund value would be much higher than it would have been in 2004.   You would pay tax in the year the payment is made. With no error, the provider would not be expected to cover your tax.

Marcon

Francis42 said:

I have claimed pension back payments going back to the pension start date in 2004. The annual pension for each year is less than 1,000 pounds. I had no earning in the years since the pension start date in 2004. Can someone please kindly advise if the accumulation of the back payments paid in a lump sum today, would be subject to taxation given the annual sum in each year,  is less than the corresponding tax free allowance in each of those years - ie if i would've paid no tax annually since 2004 - should the accumulation of back payments be subject to tax? I would be grateful of any links you can supply with your answer as i am in dispute with my pension provider. Thanks in advance.

Nearly 20 years after the first payment was due is a long time. Could you give more detail about why you didn't claim your pension when it fell due in 2004 - and why you are claiming now? Is it a defined benefit (final salary) or defined contribution (money purchase) scheme? Those bits of backstory are important.

You'll normally be taxed on the whole amount at the time it is paid, and unless your provider is definitely at fault, you will be responsible for the tax, so those bits of backstory are important.

Francis42

Thanks for your responses. The pension provider is RailPen. I worked for British Rail for 5 years. Then left the UK for unpaid missionary work. My retirement date is April 2004. The pension went unclaimed until this present moment. As i was more than 6 years outside outside of the Normal Retirement Date a committee had to meet to approve the back payments to 2004, which they duly did so. I believe its Defined Benefit pension plan. Hope this helps. Thanks.

xylophone

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam121160

https://forums.moneysavingexpert.com/discussion/comment/78851973#Comment_78851973

may be relevant to the case.

Marcon

Francis42 said:

Thanks for your responses. The pension provider is RailPen. I worked for British Rail for 5 years. Then left the UK for unpaid missionary work. My retirement date is April 2004. The pension went unclaimed until this present moment. As i was more than 6 years outside outside of the Normal Retirement Date a committee had to meet to approve the back payments to 2004, which they duly did so. I believe its Defined Benefit pension plan. Hope this helps. Thanks.

I fear the words 'went unclaimed' might sum up why you are in dispute. If the onus is on you to claim, particularly if the trustees didn't have an up to date address, then not paying it 'on time' isn't their fault.

Most DB schemes (and RailPen is one) have a provision that if a pension isn't put into payment within 6 years of becoming due, then it is up to the trustees to decide whether or not to pay any instalments which are more than 6 years 'old'. Happily they've given the thumbs up to that, so presumably your dispute is about tax? If so, worth explaining the position to HMRC and with luck there won't be any!

Francis42

Assuming i have to pay tax - with my tax code being 1257L - should i be taxed according to my tax free allowance then 20% or some other rule - as currently the proposed tax after the 12,570 allowance is greater than the excess over 12,570 - ie over 100%? - there is no other earnings

Bimbly

Francis42 said:

Assuming i have to pay tax - with my tax code being 1257L - should i be taxed according to my tax free allowance then 20% or some other rule - as currently the proposed tax after the 12,570 allowance is greater than the excess over 12,570 - ie over 100%? - there is no other earnings

Yes. 

Be aware, if you are claiming state pension, then this is also taxable and will need to be added to the amount.

You pay income tax at the marginal rate on anything above your allowance. So, as you say, 20% currently, as you are not (from what you've told us) a high rate tax payer.

There is no national insurance to be paid on pension income (the 1.25% social care levy is due to be scrapped before it happens, I believe).

Dazed_and_C0nfused

There is no national insurance to be paid on pension income (the 1.25% social care levy is due to be scrapped before it happens, I believe).

That never was going to happen.

It was people above State Pension age paying 1.25% on earnings which is, as things stand, going to start.  

molerat

Francis42 said:

Assuming i have to pay tax - with my tax code being 1257L - should i be taxed according to my tax free allowance then 20% or some other rule - as currently the proposed tax after the 12,570 allowance is greater than the excess over 12,570 - ie over 100%? - there is no other earnings

I suspect the code being used on this payment will be 1257L M1 which will mean only £1048 of it will be tax free with any amount over  £4190 being taxed at 40%. Anything overpaid on that basis will be reclaimable though.