Tax treatment of Teacher's Pension Refund due to Goodwin Ruling

LHW99

Back in the day, male teachers would have a widow's provision on their pension, but married female teachers didn't have equivalent widower's rights. Then things were changed, but if you had been working before the change date, you could pay to have service pre-change counted towards a widower's pension.

The Goodwin ruling has meant that that payment must be refunded, with interest for the years since the payment was made.

I have just had a statement giving the details of the original amount, and the interest on it over the years.

How would I deal with this on SA? I realise it was paid in this 2022-23 tax year, so is it correct that all the interest is regarded as due in that year, rather than spread over all the years between payment and now?

Also, will the interest be regarded as potentially taxable (it should mainly fall within my £1000 allowance, but with rates going up, its just possible it would push me over, alongside other savings interest)?

Jeremy535897

Interest is taxable when received, not when accrued.

LHW99

Thanks Jeremy. I thought that would be the case, but wasn't entirely sure. I presume it goes in the "Untaxed Interest" section somewhere?

Jeremy535897

Assuming it is untaxed, yes. They might deduct tax at source. 

LHW99

Jeremy535897 said:

Assuming it is untaxed, yes. They might deduct tax at source. 

From the statement they sent, it doesn't look like it has had tax deducted, but I will have another look to make sure. Thanks.

lib21by

The interest is a minute part of the settlement. Now I am worried that in this new tax year HM Customs and Revenue are treating the whole settlement ( of 15 years underpayment ) as income in one year ???

Jeremy535897

It will depend on the nature of the payment. Doesn't the documentation explain anything about the tax treatment?

I am not sure what the payment is for. You originally said that it was to refund a payment (apparently a one off) originally made to enhance benefits. Now you talk about 15 years of underpayment? When a payment of pension is made that relates to an error accruing over different tax years, it can be spread back. See:
https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam121160
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75020

sheramber

If I read this correctly,  it  seems to imply there are two payouts
 
There is the payment of the survivor benefit that wasn't paid to a female member's married/civil  partner  under the old rules.

Also, married / civil partner female members  could pay extra for a family benefit to give  a survivors pension. These payments are now being refunded.

Goodwin - Completion of cases

In 2021 Scheme rules changed to provide female members in an opposite-sex marriage or civil partnership with the same survivor pension rights as all other members who are in a marriage or civil partnership.

From April 2021, we began recalculating payments to survivors who were receiving pension payments, starting with the oldest cases first, as well as refunding those female members who made additional Family Benefit contributions to cover the affected period of service. This was due to be completed by June 2023 but we’ve now completed all cases that were identified, ahead of schedule.

lib21by

I quote " Following the recent  Goodwin court ruling, male spouses of female teachers are now entitled to receive a family benefit pension based on all pensionable service from 1 April 1972.................
............. The revision has resulted in the calculation of arrears pension due........... amounting to £xxxxx gross "

When this was paid in the Autumn, it appears to have been taxed at 20%, which would be correct

They go on " An interest payment of £xxxx has also been calculated and this will be paid, ( which it was ).......
......Any interest that is paid in relation to late payment of the pension is taxable. You should declare such payments to HM Revenue & Customs "
I can't argue with that, although why they couldn't tax that at the same time as the bigger refund, I don't know.

What I am worried about is that HM R&C now think that my ANNUAL income now includes the amount of the refund, and are taxing me in 2023/2024 in a higher tax band !

xylophone

See link below re

Any interest that is paid in relation to late payment of the pension is taxable. You should declare such payments to HM Revenue & Customs "
I can't argue with that, although why they couldn't tax that at the same time as the bigger refund, I don't know.

https://www.gov.uk/government/publications/pension-schemes-newsletter-140-june-2022/pension-schemes-newsletter-140-june-2022#:~:text=Interest payments made in addition,year is chargeable to tax.

What I am worried about is that HM R&C now think that my ANNUAL income now includes the amount of the refund, and are taxing me in 2023/2024 in a higher tax band !

You could check your Personal Tax Account

https://www.gov.uk/personal-tax-account

or phone (good luck with that - try at 8am) or write.

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/income-tax-enquiries-for-individuals-pensioners-and-employees

Dazed_and_C0nfused

lib21by said:

I quote " Following the recent  Goodwin court ruling, male spouses of female teachers are now entitled to receive a family benefit pension based on all pensionable service from 1 April 1972.................
............. The revision has resulted in the calculation of arrears pension due........... amounting to £xxxxx gross

When this was paid in the Autumn, it appears to have been taxed at 20%, which would be correct

They go on " An interest payment of £xxxx has also been calculated and this will be paid, ( which it was ).......
......Any interest that is paid in relation to late payment of the pension is taxable. You should declare such payments to HM Revenue & Customs "
I can't argue with that, although why they couldn't tax that at the same time as the bigger refund, I don't know.

What I am worried about is that HM R&C now think that my ANNUAL income now includes the amount of the refund, and are taxing me in 2023/2024 in a higher tax band !

Well based on the latest information available your (expected) income may well look higher than you know it will be.

But you can easily alter it to what you know to be a more accurate figure for 2023-24 on your Personal Tax Account.