State pension payments go up in line with the triple lock
HMRC has clarified how tax on the state pension works(Image: Getty)
HMRC has directed taxpayers to guidance explaining how tax on the state pension operates. According to information on the Government website, your tax code can be altered by the taxman if “you need to pay a different amount of tax”.
One case where this could occur is if “your weekly state pension amount changes”. Thanks to the triple lock policy, millions of state pensioners will soon see an increase in their state pension. This policy guarantees that state pension payments rise each April, in line with whichever of three figures is highest: the rise in average earnings, the rate of inflation or 2.5 percent. This April, payments will increase by 4.8 percent with the rise in earnings being the highest of the three figures last year.
HMRC was previously asked to clarify how a state pensioner’s tax code could change when the triple lock increases payments. An HMRC spokesperson said: “We adjust tax codes based on information from DWP to help pensioners pay the right tax.
“Anyone who thinks their tax code is incorrect can update their details on our app or via their online tax account, or contact our helpline if unable to go online.” The group also stated that most pensioners who pay tax are in Pay As You Earn.
In such cases, HMRC calculates your annual state pension by adding one week at your previous state pension rate and 51 weeks at the new rate, then adjusting your tax code accordingly. HMRC said that this calculation ensures “most pensioners pay the right amount of tax in real time”.
Further guidance
When pressed for further clarification on how this works, HMRC pointed to “further guidance on the uprating services and calculations” available on the Government website. The advice explains that the DWP operates an Uprating Service which automatically adjusts state pensions and benefit deductions as payments increase.
For those who reached state pension age on or after April 6, 2010, your pension pay day, from Monday to Friday, is determined by the last two digits of your National Insurance number. The guidance clarifies: “There will be no increase in benefit during the first week in April and as a result, the Uprating Service will always calculate the CY+1 coding deduction based on one week at the old rate and 51 weeks at the new rate.”
The CY+1 code refers to the upcoming financial year, with CY representing ‘current year’. For those who reached state pension age before April 6, 2010, the DWP pays your state pension on a fixed pay day.
The guidance states: “State pension is paid on a Monday, except for widow beneficiaries who receive their pension on a Tuesday. As a result the Uprating Service will calculate the CY+1 coding deduction according to the day on which April 6 falls.
“This is because where April 6 falls on a week day after the Monday, these pensioners will only receive the new rate of state pension for 51 weeks.” HMRC therefore works out your tax code using one of two methods.
The guidance explains:
- In years when April 6 falls on a Tuesday, Wednesday, Thursday or Friday, the Uprating Service calculates the coding deduction at 1 week at the old rate and 51 weeks at the new rate
- In years when April 6 falls on a Saturday, Sunday or Monday, the Uprating Service calculates the coding deduction at 52 times the new rate.
Not representative of the true figure
The guidance also carries this caution: “You should be aware that there may be some instances where the amounts notified by the DWP are not representative of the true annual figure. Where a pensioner notifies you of a different figure, code the amounts advised by the pensioner.”
The complete guidance can be found on the Government website.
