HMRC has spelt out the rules for calculating tax on state pensions and other pension income. They issued the info after a taxpayer got in touch with the tax authority about their so-called self-invested personal pension (known as a SIPP).
The taxpayer explained their situation, saying: “I have a SIPP drawdown with a regular amount which is the same each month. However, I am allowed to to request an ad hoc payment on top of my normal amount. Would HMRC then assume this would be each month or check with my pension provider?”
A SIPP is a self-invested personal pension where individuals set up and structure the investments themselves. Responding to the query, an HMRC rep stated: “We will use the information sent to us by your pension provider and adjust your record accordingly.”
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The taxpayer then asked if a one-off payment would be taken into account. HMRC provided this answer: “It should just be taxed as a one-off payment. I assume your full personal allowance is already set against the monthly payment you receive? If this is the case, the one off ad hoc payment should just be taxed at the basic rate.”
The individual then said they have multiple pensions in addition to their state pension and they were hoping the ad hoc payment would be taxed at the basic rate as they are not in the 40 percent tax band. HMRC confirmed that they would be taxed at 20 percent if they were not a higher rate taxpayer.
Martin Lewis recently encouraged state pensioners and those planning for their retirement to check if they could increase their payments by topping up their National Insurance (NI). A follower of the Money Saving Expert site recently shared how they were set to boost their payments by £60,000 after topping up.
The full new state pension currently stands at £221.20 a week, and you typically need 35 years of NI contributions to receive the full amount. You can discover if you have any gaps in your National Insurance record and how much state pension you are set to receive on the Government website.