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State pension warning over easy mistake that could mean you miss out on £3,900 in benefits

A WARNING has been issued over an easy state pension mistake that could mean you miss out on £3,900.

Deferring your pension is often seen as an easy way to boost your savings pot when you do decide to retire.

a wallet full of british money including 5 10 and 20 pounds
A warning has been issued over an easy state pension mistake
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That’s because for every year you delay, you boost your pension by just under 5.8%.

But for some, it might be a big mistake, because it may then put you over the threshold for Pension Credit – a handy benefit worth up to £3,900 a year which also unlocks the Winter Fuel Payment.

The Sun was inundated with calls from hard-up pensioners during its Winter Fuel SOS phone-in last week who fear they will be unable to heat their homes without the payment this year.

Many had been disappointed to find that because they had put off taking their state pension, they were now over the limit for Pension Credit.

Now, people who might find themselves in the same position are being urged to not take the decision lightly.

The single-person Pension Credit rate is £218.15, while the full new state pension is £221.20 so if you get the full amount then you already are over the threshold.

The people who would be affected by this are those who get less than the full amount of state pension, due to the number of “qualifying” National Insurance years they have.

However, if your pension is below the full rate then if you take it on time you might get Pension Credit – as well as the WFP and cold weather payments.

Under current rules, you need 35 qualifying years to get the full amount of state pension.

For example, someone who has 34 qualifying years gets 34/35 of a full pension or £214.88.

If this person takes their pension on time, they are entitled to Pension Credit and everything that comes with it. We have explained all the perks you can get here.

But, if they defer for just one year, the extra 5.8% takes them up to £227.34 per week – above the Pension Credit level.

So, this means they then lose out for good on all the extras that come with Pension Credit.

Former pensions minister and partner at LCP told The Sun that “the lesson to learn” is that if your state pension is short of the full amount and you might therefore otherwise qualify for Pension Credit in retirement, “you should think very hard before deferring”.

He also pointed out that those who are perhaps working past pension age might think of deferring their pension for tax reasons.

This group could inadvertently end up worse off than if they had simply taken their pension on time.

Mr Webb said: “Not everyone takes their state pension as soon as they reach pension age, and the reward for deferring is an extra 5.8% on your pension for each year you defer.

“But for people whose pension is short of the full amount, there can be a sting in the tail.

“If your normal pension figure is below pension credit then claiming at retirement means you will get a top-up and all the extras which come with pension credit such as keeping your winter fuel payment.

“But if you defer even for one year, you might find your pension is now over the pension credit line and that you have lost all of that additional help – potentially for the rest of your retirement.”

Mr Webb believes that the Department for Work and Pensions (DWP) should flag to people who are thinking of deferring that they need to “think very carefully about the potential knock-on effects” of benefit entitlement before they make a decision.

If you’re not sure if you will be able to get Pension Credit, you can use our handy tool to check what benefits you’re eligible for.

What is Pension Credit and who is eligible?

Pension Credit is a government benefit designed to top up your weekly income if you are a state pensioner with low earnings.

The current state pension age is 66.

There are two parts to the benefit – Guarantee Credit and Savings Credit.

Guarantee Credit tops up your weekly income to £218.15 if you are single or your joint weekly income to £332.95 if you have a partner.

Savings Credit is extra money you get if you have some savings or your income is above the basic full state pension amount – £169.50.

Savings Credit is only available to people who reached state pension age before April 6, 2016.

Usually, you only qualify for Pension Credit if your income is below the £218.15 or £332.95 thresholds.

However, you can sometimes be eligible for Savings Credit or Guarantee Credit depending on your circumstances, even if you’re over these limits.

For example, if you are suffering from a severe disability and claiming Attendance Allowance, as well as other benefits, you can get an extra £81.50 a week.

Meanwhile, you can get either £66.29 a week or £76.79 a week for each child you’re responsible and caring for.

The rules behind who qualifies for Pension Credit can be complicated, so the best thing to do is just check.

You can do this by calling the Pension Service helpline on 0800 99 1234 from 8am to 5pm Monday to Friday or by using free online calculators.

Those in Northern Ireland have to call the Pension Centre on 0808 100 6165 from 9am to 4pm Monday to Friday.

It might be worth a visit to your local Citizens Advice branch too – its staff should be able to offer you help for free.

Pension Credit is known as a “gateway” benefit which means it opens up a host of perks, like theWinter Fuel Payment and a free TV licence if you are 75 or over.

It also unlocks discounts on your council tax and the Warm Home Discount, if you are on the Guarantee Credit part of the benefit.

How do I apply for pension credit?

YOU can start your application up to four months before you reach state pension age.

Applications for pension credit can be made on the government website or by ringing the pension credit claim line on 0800 99 1234.

You can get a friend or family member to ring for you, but you’ll need to be with them when they do.

You’ll need the following information about you and your partner if you have one:

  • National Insurance number
  • Information about any income, savings and investments you have
  • Information about your income, savings and investments on the date you want to backdate your application to (usually three months ago or the date you reached state pension age)

If you claim after you reach pension age, you can backdate your claim for up to three months.

Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.

Plus, you can join our Sun Money Chats and Tips Facebook group to share your tips and stories

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11 codes on payslips that reveal if HMRC owes you a tax refund 

WORKERS can scour their payslips to discover if they are due a tax refund that could be worth thousands of pounds.

HMRC codes indicate the level at which you are being taxed on your income.

A collection of modern British banknotes surrounding the HM Revenue & Customs heading on a UK Government tax form.
If you are on the wrong tax code you could be owed a refund

If your code isn’t correct for your financial circumstances, you could be paying more in tax than you should be and may be owed money back.

The code you need to look out for is a mixture of numbers and letters.

If you realise you’re paying the wrong amount in tax, you can claim back overpaid cash for up to four years after.

However, the onus is on you to check that it’s right and let HMRC know if there is a discrepancy.

Here we explain what each code means so you can work out if you’re being taxed the correct amount.

Plus, how to challenge your code if you realise that it’s wrong.

TAX CODES EXPLAINED

The letters at the start of your tax code all mean something different and will show whether you are entitled to the personal allowance. This is the amount you can earn each year before being taxed and it currently stands at £12,570.

  • L – You’re entitled to the standard tax-free Personal Allowance. The common tax code is 1257L.
  • M – Marriage Allowance: you’ve received a transfer of 10% of your partner’s personal allowance (£1,257)
  • N – Marriage Allowance: you’ve transferred 10% of your personal allowance to your partner
  • S – Your income or pension is taxed using the rates in Scotland
  • T – Your tax code includes other calculations to work out your personal allowance, for example, it’s been reduced because your estimated annual income is more than £100,000
  • 0T – Your personal allowance has been used up, or you’ve started a new job and your employer doesn’t have the details they need to give you a tax code
  • BR – All your income from this job or pension is taxed at the basic rate (usually used if you’ve got more than one job or pension)
  • D0 – All your income from this job or pension is taxed at the higher rate (usually used if you’ve got more than one job or pension)
  • D1 – All your income from this job or pension is taxed at the additional rate (usually used if you’ve got more than one job or pension)
  • NT – You’re not paying any tax on this income
  • Tax codes starting with K mean you have income that isn’t being taxed another way and it’s worth more than your tax-free allowance

There are different reason you could be on the wrong tax code. Often an error can be made if you change your or your salary changes.

HMRC might not have been given updates relating to new circumstances.

You should check your tax code when you move jobs or if you have a change in salary to make sure you’re still paying the right amount.

What if my tax code is wrong?

If you think you might be on the wrong tax code, contact HMRC. You can call them on 0300 200 3300.

Or, you can send a letter to the following address: Pay as You Earn and Self Assessment, HM Revenue and Customs, BX9 1AS, United Kingdom.

If you are on the wrong tax code and have been paying too much, HMRC will change it so you pay the correct amount moving forwards.

You should then be reimbursed for any tax you’ve overpaid.

You could, however, contact HMRC about an incorrect tax code and find you have underpaid tax.

In this case, you will usually have to pay the money back over 12 months.

But, only if you are earning enough income over the Personal Allowance, which is currently £12,570, and owe less than £3,000 back.

HMRC might get in touch with you to tell you you’re owed a tax rebate, too.

In this case, you’ll get a P800 letter or a simple assessment letter in the post.

A P800 might tell you if you’ve not paid enough tax and have to pay it back. It will say if you can claim online through the government’s website.

If you can claim online, you’ll need your Government Gateway ID and password. The money will then be sent to your bank account within five days.

You can also claim your refund through the HMRC app.

If your P800 letter tells you you will be paid your tax rebate via cheque in the post, you should receive it within 14 days of the date on your letter.

If you’re owed tax from more than one year, you’ll get a single cheque for the entire amount.

How do I check my tax code?

YOU can check your tax code on your personal tax account online, on any payslips or on the HMRC app.

To log in, visit www.gov.uk/personal-tax-account.

If you have one, you can also check it on a “Tax Code Notice” letter from HMRC.

Bear in mind that you might need your Government Gateway ID and password to hand to log in.

But if you don’t have this you can use your National Insurance number or postcode and two of the following:

  • A valid UK passport
  • A UK photocard driving licence issued by the DVLA (or DVA in Northern Ireland)
  • A payslip from the last three months or a P60 from your employer for the last tax year
  • Details of a tax credit claim if you have made one
  • Details from a self assessment tax return (in the last two years) if you made one
  • Information held on your credit record if you have one (such as loans, credit cards or mortgages)

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