Over 1.7 million state pensioners in the UK may have been overcharged on their taxes due to a significant mistake by HM Revenue and Customs (HMRC). Typically, retirees whose income comes solely from the State Pension, workplace pensions, or savings interest do not need to complete a self-assessment tax return because their tax is automatically deducted.
However, if pensioners receive income from other sources, they are required to fill out a self-assessment form annually. HMRC pre-populates state pension figures on these forms using a calculation method that is now acknowledged to be incorrect.
Currently, HMRC calculates the taxable state pension by multiplying the current year’s weekly pension rate by 51 weeks, then adding one week at the previous year’s rate. This method aligns with Department for Work and Pensions (DWP) rules. But HMRC has been pre-populating the form with a figure based on 52 weeks at the new year’s rate, which inflates the amount and leads to overcharging.
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Steve Webb, a partner at pension consultancy LCP and former pensions minister, highlights the confusion around state pension taxation and expresses concern about HMRC’s error. He advises pensioners filing returns to verify the state pension figure used and ensure it reflects the correct calculation.
HMRC has acknowledged the mistake and is expected to rectify the issue. Meanwhile, pensioners should review their tax returns carefully, as they may be entitled to refunds where they have been overcharged.