The majority of pensioners need all the financial help they can get so here’s some quick and easy information to see if you’re paying too much tax on your pension and/or state benefits.

It All Revolves Around The Form P161

A few weeks before a man hits 65 years, or a women 60 they’ll receive a computer generated tax form called the P161. This is sent by the Inland Revenue (now actually called HM Revenue & Customs) and asks for information such as -

• When you’re stopping work
• Will start to receive the state pension (men can start at 65 but don't have to take it, if they wait 1,2 or even more years they'll receive more money per week)
• Any other pension income
• Are looking to take a part-time job etc

The form actually makes a lot of sense because for many people when they hit their 60s a lot of financial changes happen. But many older tax-payers don’t actually understand the form or indeed why they’ve been sent it in the first place. Also, some will fill it in incorrectly or even dump it in the bin as soon as it drops through the letterbox. So if the Inland Revenue receives an incorrect P161 or never receives one then there’s a good chance a pensioners tax code will be wrong. Sods law therefore states that a wrong tax code will mean the payment of too much tax.

So What’s The Main Problem With This P161

• When you get retirement age (65 for men, 60 for women) your personal tax allowances get greatly increased
• For the 2005-2006 pensioners aged 65-74 for men get a tax free allowance increase to $7,090 which rises to $7,220 when 75
• To put this in perspective if you’re under 65 (and male) the non-taxable allowance is only $4,895
• So with an incorrect form P161 it’s very possible that you’ll be in the wrong tax band and therefore in the wrong non-taxable band