New pensioners can lose out

Published on 5 April 2005

When pensioners first start to receive the State Retirement Pension (SRP) their tax affairs can go off the rails for the first time in their lives. Unfortunately, inadequate Inland Revenue or DWP processes and lack of guidance mean that this happens all too often. The results can be overpayments of tax, underpayments of benefits or unnecessary forms to complete.

LITRG have accumulated experience over a number of years of the types of problem occurring, some of which are listed below:

  • Coding notices being wrong due to:
    • Incorrect amounts of SRP
    • Missing higher personal allowances on reaching 65
    • Married couple's allowance not being given
    • No restriction of married couple's allowance where relevant
    • Reliefs from a pre-retirement employment carried over incorrectly to retirement
  • Pensioners with multiple sources of pension not being looked at holistically by the Revenue leading to overpayments
  • The DWP not deducting the tax payable on the SRP when calculating the Pension Credit award
  • The SRP alone causing the individual to be issued with Self Assessment forms

All of these issues can lead to pensioners landing themselves in debt unexpectedly, not receiving their full entitlements and spending their retirement filling in forms.

Nearly all of these problems arise due to Revenue or DWP processes and a lack of effective liaison between the two.

At the centre of the problem is a computer generated form, the P161. This is issued following a notification from the DWP a few weeks before an individual is due to reach 60 or 65.

The P161 process is dogged by a number of problems:

  • There is no clear explanation given to taxpayers as to why it is being issued and why it is essential to have it completed quickly and the advantages to the taxpayer of doing so
  • It is sometimes issued to women who have already been receiving their pensions for close to 5 years and does not appear relevant to them
  • It has not been updated for five years

As a result, it seems that the completion rate is not very high. If it is not returned, the Revenue take the benefit of any doubts about the taxpayer's situation leading to overpayments by the taxpayer. Sometimes there are no doubts, but the Revenue still take the conservative line.

People who have not worked before they receive a pension may get totally bypassed in the P161 process.

LITRG would like to see the end of the P161 lottery and advocates urgent attention being given to:

  • Adequate guidance for taxpayers approaching retirement
  • Joined-up working between the Revenue and the Pensions Service to provide joined-up advice on tax/pension/pension credit matters
  • Women already in receipt of the SRP should get a Revenue form appropriate to their needs
  • Revision of Revenue forms (particularly the P161) and improved literature focusing upon retirement issues
  • Ensuring that pensioners with a single source of income, namely the SRP, should not have to complete a Self Assessment return

These actions would:

  • Significantly reduce manual adjustments and simplify processes so enabling reductions of staff
  • Significantly reduce overpayments of tax by some of the most vulnerable and needy pensioners
  • Reduce unexpected underpayments
  • Enhance the take up of Pension Credit
  • Increase the accuracy of Pension Credit claims
  • Reduce bureaucracy for the taxpayer

Pensioners on low incomes with these types of problems can always get assistance from the free service run by TaxHelp for Older People by ringing their Helpline on 01308 488066.

(05-04-2005)

Contact Name: John Andrews (Tel: 0844 579 6700, Fax: 0844 579 6701)