Is interest on delayed income pension taxable?

ronrapp

Hi

I have an unusual situation with regards to my NHS pension. It seems the part of my pension in the NHS 2015 pension scheme was revalued and was due to be adjusted by April 2019. That didn't happen and having retired in October 2019 I received an adjustment in the form of an extraordinary payment this January 2025 which was taxed based on my tax code and tax band. However I also received another payment which was the interest due on the late payment of said income that was not taxed but the NHS advice was to contact HMRC about it.

I spent over 2 hours (over an hour to speak to the first agent blamed on the self assessment deadline!). Spoke to 3 different departments but no one was able to tell me if tax was due on the interest related payment. The issue is sitting with the public service remedy team although they thought the payment was not related to the McCloud judgement affecting public service pensions. I'm hope to get a reply within 15 days but I wondered if anyone can advise if interest earned on unpaid income is taxable or can be viewed as part of my personal savings allowance. I can't be the only person to retire from the NHS since April 2019 so suspect there are a fewer NHS pensioners receiving these income interest related payments.

Cheers.

pinnks

I think the starting point is, why would it not be taxable?  Surely it is just interest and would be covered by your Personal Savings Allowance in the same way as any other interest you receive, with any excess being taxed at your marginal rate? 

ronrapp

Hi spent over an hour getting through to HMRC on another query and managed to find someone who was able to answer this issue authoritively that the interest payment would fall under peoples personal savings allowance (PSA) and would only be subject to tax if the payment led to someone exceeding their £1000 PSA.

pinnks

So, exactly what I said in my previous post! i.e. it's taxable just like any other interest but unless your total interest exceeds your PSA (£1,000/£500/£0 depending on your total income), no tax would have to be paid on it.

neet

...bit late pinnks but just wondering if anyone you talked with tried to argue in essence a partial retirement at step one not an underpaid pension plus interest...so the early reduction factor on stage 2 goes down giving in perpetuity gain to pension and lumpsum incresed too. (or if you retired at 65 then late retirement factor included) I suspect this is more valuable to you....what i am thinking of arguing for wife. Of course they will say couldnt part retire then from 95 scheme but in essence they broke the law and de facto that is what happened. The difference for say 2 year delay is interest say 6%? taxed ? 3.6% and erf reduction of .9%...4 yrs to breakeven