I am a 76 year old pensioner. I receive a private pension from the civil service pension scheme, as well as my state pension.
Capita took over the administration of my pension in December and this is when my issues began.
My tax code is S329M against my annual gross figure of £22,687 for my civil service pension.
I agree with all these figures which mean that I pay more than £300 tax per month. However in February the tax figure rose to more than £900 – a £600 over-payment of tax.
This also occurred in March. My question is how do I get this money back? What are my options going forward if this continues into the next tax year?
There are obvious issues at Capita. I am unable to contact anyone other than call centre agents. I have written three letters all without response.
Steve Webb replies: When I saw your question about an error with a civil service pension, I must confess that I immediately jumped to the same conclusion as you, and assumed that Capita was to blame.
But, as we have now discovered, in this case Capita was not at fault and it was actually an error by HM Revenue & Customs which caused the problem.
The issue here is the Pay-As-You-Earn (PAYE) system whereby tax codes and other information are issued by HMRC to employers and pension providers so that they can deduct the right amount of tax each pay period.
In many ways, tax codes are quite a clever way of avoiding the need for most people to file a tax return.
Provided that HMRC knows about your different sources of taxable income, it can issue an appropriate tax code which tells the employer or pension provider how much tax to deduct.
By the end of the year, you should have paid the right amount of tax.
And, if there turns out to have been any discrepancy (such as a modest under-payment or over-payment), your tax code for the following year can be adjusted to deal with this as well.
In your case, the ‘S’ at the start of your tax code indicates that you live in Scotland and are therefore subject to the income tax rates and bands that apply in Scotland.
The ‘M’ at the end of your code indicates that your wife has transferred 10 per cent of her tax-free allowance to you using the ‘Marriage Allowance’ system.
And the 329 indicates that £3,290 per year of this pension is tax-free before you have to pay income tax.
HMRC has provided a helpful tool here: Tax codes: What your tax code means where anyone can enter their tax code and have an explanation of what the letters and numbers mean.
In your case, you were receiving a state pension and civil service pension and everything was progressing smoothly.
Your state pension was, as normal, paid before the deduction of tax.
The amount of this pension was knocked off the standard £12,570 annual allowance and the remainder (plus your wife’s transferred allowance) was allocated as your remaining tax-free amount on your civil service pension.
Unfortunate coincidence
The problem arose in December when Capita was wrongly supplied by HMRC with an inflated ‘year-to-date’ income figure.
Because this happened around the time that Capita was taking over the administration of the scheme you (not unreasonably) assumed that the two things were connected. But in this case it was just an unfortunate coincidence.
Once your scheme had been told that your income for the year was much higher than it had thought, it deducted much more tax for the rest of the financial year.
You were concerned that this problem might continue into the new financial year (2026/27), but the good news is that this was a one-off problem which has now been fixed.
In terms of getting a refund, HMRC undertakes a standard end-year ‘reconciliation’ calculation where it compares the tax it thinks you should have paid with the tax that you actually did pay.
The result of this calculation is provided to you via a P800 tax calculation letter.
Normally this calculation waits until banks and others have provided details of any untaxed interest income and tends to be available by the end of June. At this point you would be able to claim a refund.
However, you have told me that the only bank interest you have is under the £1,000 per year Personal Savings Allowance to which you are entitled, and that HMRC therefore already knows the final figure which it owes you.
HMRC says that if you notify it of this it should be able to repay you quicker.
Commenting on your case, an HMRC spokesperson said: ‘We have written to apologise and have explained how he can obtain a refund.’
Although Capita was not at fault in this case (and responded exceptionally promptly when I asked them what had happened), one reason why you contacted us in the first place was that you could not get a response from Capita. However, the company declined to comment further.
Ask Steve Webb a pension question
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on pensions to the public. It can be found here and its number is 0800 011 3797.
Steve receives many questions about state pension forecasts and COPE ¿ the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
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