Retiring and receiving your pension should be the best part of your journey with the Scheme.
Therefore, it is important to know how your pension is taxed, so you can enjoy your income from the Scheme without any confusion about how much you receive.
How does my pension increase in payment?
When your pension is in payment, the pension increase rules will be applied with effect from each 1st January. Different increase rules are applied to different parts of your pension, depending on when you built up benefits in the Scheme.
The current rules for pension increases are:
- For pension earned up to and including 5th April 1997 the increase is 3% p.a.
- For pension earned between 6th April 1997 and 5th April 2003 the increase is inflation, with a minimum of 3% and a maximum of 5%.
- For pension earned after 6th April 2003 the increase is inflation, with a maximum of 5%.
The Scheme currently uses the Consumer Prices Index (CPI) as the measure of inflation.
If you retired part way through the year, the increase applied at 1st January will take into account that part year.
What happens if I take my pension and I am still working?
Her Majesty’s Revenue and Customs (HMRC) will take into account all the income you are receiving when they calculate your tax codes. If your circumstances change part way through the tax year, it is a good idea to contact HMRC so they can adjust your tax codes as soon as possible. This will reduce the chance that you will over or underpay on your tax. You can find your local tax office contact details on the back of your pension payslip.
Do I pay National Insurance Contributions on my pension?
You don’t pay National Insurance Contributions on any payments you receive from pension schemes. If you have not yet reached your State Pension Age, you may still need to pay National Insurance Contributions on any income you receive from employment or self-employment.
What if I have a query about the tax I am paying on my pension?
Your pension is taxed as income by Her Majesty’s Revenue and Customs (HMRC). When we first set your pension up, we won’t know the right tax code for you, so you will be taxed at the basic rate. As soon as we receive a tax code from HMRC we will apply this to your pension, which may mean that you have paid too much or too little tax, and an adjustment may need to be made to correct the total amount of tax collected.
Actions to take:
The Pensions Department apply the tax codes received from HMRC. We are not involved in how the tax on your pension is calculated. If you have a query about the amount of tax being deducted from your pension, please contact your local tax office. Their details can be found on the back of your payslip.