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Last Updated: Saturday, 13 January 2007, 14:38 GMT
200,000 pensioners are overtaxed
By Paul Lewis
BBC Radio 4's Money Box

A women pensioner
Although many pensioners will pay less tax, a few might pay more
More than a million retired people are facing changes in the way their pension is taxed.

About 200,000 of them may have been paying too much tax for years and they can now claim it back, but only for six past tax years.

Others could face an increase from April in the tax they pay as HM Revenue & Customs corrects their details.

The people affected have what is called a retirement annuity contract which they paid into before 1 July 1988.

In future, tax will be deducted automatically through the PAYE system used for wages and salaries and for personal pensions begun after that date.

The Low Incomes Tax Reform Group (LITRG) has been campaigning for this change.

LITRG's Jane Moore told BBC Radio 4's Money Box that many people could end up with big refunds.

"If you have one of these contracts you have a flat rate 22% basic rate income tax taken off it," she said.

"I dealt with a case myself where someone paid over 600 a year as he went along and should have been paying about 50 a year."

But she warned that there are limits to what can be recovered: "You can claim back tax for the past six years. So back to the year 2000/01. But to get that year back you do have to get your claim in by 31 January this year."

Two year delay

LITRG wanted the government to extend the deadline to allow people at least eight years of back tax.

"For years pensioners with certain types of pensions have had too much tax deducted from their payments," Ms Moore said.

When some of the poorest pensioners in the land want a repayment of the taxes that they have overpaid, HMRC offers six years
Jane Moore, LITRG
"Now, to add to their pain, HMRC is refusing to repay overpaid tax that is more than six years old."

LITRG says the government originally flagged up the change two years ago and promised to take action then, so it wanted this two year delay added to the normal six years.

"When a taxpayer is negligent and underpays taxes then HMRC can go back and collect underpaid taxes for 20 years," Ms Moore said.

"When some of the poorest pensioners in the land want a repayment of the taxes that they have overpaid, HMRC offers six years."

Although many pensioners will pay less tax, a few might have to pay more. Some will have registered their low income in the past and currently pay no tax.

But if their income is now higher, they may have to pay tax from April. The Revenue should be writing to them in the near future.

And all the 1.2m affected should get a tax code before the new tax year starts in April.

The HMRC annuities helpline 0845 366 7868 is open Monday to Friday 0830 to 1700.

BBC Radio 4's Money Box was broadcast on Saturday, 13 January 2007 at 1204 GMT. It will be repeated on Sunday, 14 January at 1502 GMT.



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