Will women face large tax bills as a result of a state pension error?

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David and Denyse Vallender: “It is a monumental error by the government,” he said after receiving £ 21,700.

The government is in a hurry not to “insult the insults” by depositing underpaid women massive sums in state pensions with unfair tax bills.

Denyse Vallender, pictured on the right with her husband David, received £ 21,700 due to government stampede, while Allison Clark received £ 16,500, the latter in a scandal discovered by This is Money.

The two normally have too low an income to pay tax, but their payments in return will push them into the prime rate tax bracket this year.

Tax experts say it would be “deplorable” and “barely fair” to force them – and potentially many other older women – to pay taxes they could have avoided without a government error.

Tens of thousands of elderly women may owe a fortune on a state pension lost after a gigantic error dating back several decades.

We are looking at how the money they have been deprived of for years could now be taxed in more detail below and here.

The Ministry of Labor and Pensions, which is facing requests for urgent measures to remedy an estimated shortfall of £ 100 million, has again told us that it is “looking for new cases”.

But the government’s tax arm adds: “HMRC is working with the DWP to determine the tax implications of these payments as soon as possible. “

This is Money has covered cases of retired women receiving payments amounting to around £ 74,000 in recent months and has reported a staggering £ 117,000 given to a 96 year old widow who has been underpaid for 20 years.

Why do some married women receive an underpaid state pension?

Married women who retired on small state pensions before April 2016 are also expected to receive 60% of their husband’s payments after he reaches retirement age.

Since 2008, the increases are supposed to be automatic, but before that, women had to apply for the full amount they owed.

Learn how to find out if you’re underpaid and what to do about it below.

Hundreds of emails have poured in from readers concerned that they have also missed a state pension since the start of our investigation.

We have received a handful of messages from women who independently obtained between £ 7,000 and £ 21,500 from the DWP.

Former Pensions Minister Steve Webb, who first highlighted this problem in a column in This is Money, says: “It would insult the wound not only to be underpaid of the pension for many years, but also of facing a tax bill when DWP finally put things right.

“It would be particularly unfair to a low-income married woman who would not normally pay income tax and who would not have paid tax if the pension had been paid correctly from the start. “

Webb, now partner with LCP pension consultant, adds: “The DWP and HMRC must issue clear guidelines for retirees so they know what to do when they receive a lump sum, and they must ensure that people are not worse off. in tax terms only due to an original DWP error. “

How will payments back to women due to government fraud be taxed?

Heather Rogers, founder of Aston Accountancy, says, “If you receive a large amount of backdated pension, it could, if treated as income in the year you receive it, be taxed at a higher rate than if you received it within one year, it should have been paid.

“It doesn’t seem fair, especially if no tax would have been due if the right pension had been collected at the time.

“Depending on the political pressure exerted through Parliament, there may be an argument for not taxing these payments at all, but people certainly shouldn’t bet on this result. “

Rogers thinks that HMRC could end up attributing a backdated pension to the taxation years to which it should have applied, or treating the retroactive payments as deferred state pension lump sums, which effectively means ignoring them for calculation purposes of income to determine the tax rate to apply.

She urges women receiving arrears to find an accountant, even if they generally don’t use them, and to make sure they are a qualified tax advisor.

“It will be worth it to get it right and have a professional in your area to fight the HMRC if necessary,” she said.

>>>Learn more here. on what Rogers advises women receiving advance payments to do about tax

What does the DWP say?

A DWP spokesperson said, “We are aware of a number of cases where individuals have been underpaid from the state pension.

“We corrected our files and reimbursed the people concerned as soon as errors were identified. We are looking for other cases and if so, the rewards will also be reviewed and any arrears will be paid. “

It notes that married women are required to request an increase in payments if their husband has reached retirement age before March 17, 2008, but not if he has subsequently done so.

The DWP says it encourages anyone who believes they have not claimed a state pension increase for which they are eligible to contact the department.

He adds that “interest and consolidation payments” will be considered on a case-by-case basis and will depend on individual circumstances.

The coordinates of the DWP are here.

Mike Warburton, independent expert and former tax director for Grant Thornton, says: “In my opinion, it would be deplorable if retirees who were so badly treated had to pay more taxes than they would have been for example, for example , tax their arrears as income for the year they receive it.

“There is already legislation which could be applied to treat these amounts as tax exempt for non-taxpayers or only at the basic rate for taxpayers at the basic rate, in the same way as for deferred state pensions , if the government chose to apply them.

“There is another reason why lump sum payments should not be taxed in full. State pensions are taxable by law depending on the year in which the pensioner was entitled to collect them, and in particular regardless of when they were actually paid.

“HMRCs are not allowed to assess income tax for more than the current year and four years behind in these circumstances, so you should not have tax payable on your pension entitlement for years before that, whatever your current tax rate. “

The DWP has refused to reveal how the massive financial blunder of state pensions occurred, or what steps it is taking to identify women who could unintentionally lose thousands of pounds from their pockets.

This is Money asked whether he would pay the monies owed to the heirs of deceased women when they were receiving an incorrect state pension, but did not respond.

Labor Pensions Minister MP Jack Dromey has asked questions of Parliament to put pressure on the government on what it is doing to find and pay the women who are affected.

He says, “It is simply outrageous that hard-working women have suffered such drastic cuts in their pensions. “

Regarding the last two overdue payments to women that we cover below, he adds: “These cases show how inept the Ministry of Labor and Pensions is on this critical issue.

“Simply transferring thousands of pounds to individual bank accounts is not enough.

“The ministers must thoroughly investigate what happened and, most importantly, determine the number of underpaid women.

“Each of the women involved deserves every penny of what they have worked so hard for throughout their lives.

“Yet there are probably several thousand people who do not yet know that they are even affected by this scandal. It’s just not enough.

>>> Did you receive an underpaid public pension? Find out what to do below

“It is a monumental government error, and there are people in need bigger than us”

Denyse Vallender was receiving about £ 34 a week when her husband David read one of our stories about women who were underpaid from the state pension.

He immediately realized that their long-standing suspicion that his payments were too low could ultimately be justified.

Mike Warburton:

Mike Warburton: “It would be deplorable if retirees who were so badly treated had to pay more taxes than they would have been otherwise”

Vallender, a former risk and social security officer, postponed his state pension until he was 72 because he continued to work well past his retirement age.

He said that they had long been concerned about the amount of his wife’s pension and that they questioned the DWP about it twice, first when she reached state pension and again when he ended her adjournment, but were told it was okay.

“I was looking for clues that it was wrong,” said Vallender. “I finally thought it was something that would point us in the right direction. It never seemed right.

“It seemed fair in terms of fairness. This is the way we both feel.

The couple, who is 76 years old and lives in Northamptonshire, wrote to This is Money and we contacted the DWP on their behalf. Mrs Vallender receives £ 21,321 in arrears and £ 368 in interest.

Vallender says of his own experiences with the DWP: “On their website, it’s not clear how you can approach them with a complaint about it.

“I sent a message to their complaint line. Naturally, I had no response. I didn’t think about calling them because it’s a waste of time. You have to be really lucky to talk to someone.

Simply transferring thousands of pounds to individual bank accounts is not enough. Ministers must investigate thoroughly “

Minister of Labor Pensions, MP Jack Dromey

Ms. Vallender’s early repayment indicates that a husband deferring his state pension will not have a negative effect on the amount his wife could receive in arrears, but the government has refused to confirm it.

“It is a monumental error of the government. I’m sure they didn’t want it to be discovered. I cannot stress enough how lucky we are to have seen your article, “said Mr. Vallender.

He says that he and his wife are thrilled and think that justice has been done, but although the payment will make things much better for them, they are concerned about the people for whom such a sum would mean even more and still receive too little.

“We both think there are people in need who have more than we need. There must be people who are suffering and that means it is very bad.

“They just need a computer program to do this calculation, it’s not rocket science”

Allison and David Clark contacted the DWP in response to our previous articles, and in just seven days, just over £ 16,046 was deposited into his bank account.

But that didn’t include interest, and the Glasgow couple did nothing in their efforts to pursue it themselves.

STEVE WEBB ANSWERS YOUR QUESTIONS ABOUT PENSIONS

In an appeal to the DWP, Mrs. Clark was told that her state pension would drop from around £ 41 per week to just over £ 84.

However, staff did not tell him whether his lump sum included interest or whether it would be added later.

After This is Money’s intervention, an additional £ 435 was paid to Mrs Clark, 74, a former university secretary.

The DWP has stated that “interest and consolidation payments” will be considered on a case-by-case basis and will depend on individual circumstances.

The Clarks’ case shows that he might not include or mention interest when he makes a prepayment, and that women may have to follow up to make sure that amount is also paid.

Ms. Clark is currently a non-taxpayer, and the couple is concerned that the payment will push her into the prime rate tax bracket, so she wants a full breakdown of the numbers.

Scottish tax rates differ slightly from those in the rest of the UK – read more here.

“The money has just appeared in his bank account. We have no idea how it is made up, “said Mr. Clark, 75, who was an accountant in the shipping industry before retiring.

He had no idea before reading our story that his wife’s state pension could be too low, and he is baffled that the DWP had not discovered the problem before.

‘I’ve never heard of it. Once the money reached the bank account, I warned all my friends and they had never heard of it.

“The DWP has all the information it needs, like my date of birth and that of my wife, and what we receive from the state pension. They just need a computer program to do this calculation. It’s not rocket science.

Ms. Clark adds, “I don’t understand why if they made all of these mistakes, they didn’t do something sooner.”

Has the DWP contacted you regarding the underpaid public pension?

The Ministry of Labor and Pensions has told us that it is “looking for other cases”, but said nothing more about the extent of its investigation.

If you have received a notification regarding an underpaid public pension and / or an overdue payment without first contacting the DWP yourself, we would like to hear from you.

Write to Steve Webb at [email protected] and tell us the details. Please put DWP CLAIMS in the subject line.

IMPORTANT: If someone unexpectedly contacts you by letter, phone, or email claiming to belong to the DWP, take precautionary measures before responding or providing personal information.

Click here to find the official DWP contact information and use it to verify and confirm that this was a legitimate approach.

If you think your state pension is underpaid, Steve Webb’s LCP company has launched an online tool to help older married women determine if they are being paid properly. Learn more here.

But Webb points out that the website is just meant as a useful tool, and anyone who is in doubt about the amount of pension they receive should contact the Department of Labor and Pensions.

TOP SIPPS FOR DIY PENSION INVESTORS

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