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Since April 2007 the way you pay tax on a retirement annuity has changed. If you think you have overpaid tax there are deadlines for claiming back overpayments.
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Retirement annuities are paid out of Retirement Annuity Contracts which were a type of pension plan that individuals could take out before 1 July 1988. After this date they were replaced with personal pensions, but those started before 1 July 1988 can carry on until the person retires.
Retirement annuities - questions and answers
Retirement Annuity Contracts on the Pensions Advisory Service website (Opens new window)
Before 5 April 2007 all retirement annuities were paid with tax taken off at the basic Income Tax rate. If your income was low enough not to pay tax you completed a form R89 'Application to receive an annuity without tax taken off'.
On 6 April 2007 the system changed. Now all retirement annuities - except Purchased Life Annuities - are taxed through PAYE (Pay As You Earn), the same as personal or company pensions.
HM Revenue & Customs (HMRC) sends your annuity provider a tax code which tells them how much tax to deduct before they pay you. The tax code notice might also ask for a deduction of tax due on your State Pension if you're not already paying tax on this through other means. The tax code is based on information HMRC have about your age and overall income.
You'll receive a form P2 PAYE Coding Notice telling you what your tax code is. It's important to check it. If you think any of the information is wrong you can ask HMRC to re-check it and get a refund if you've overpaid tax. Read the related guides under 'More useful links' below to find out more.
At the end of the tax year you'll get a P60 End of Year Certificate. This shows the amount of your annuity and the tax that's been taken off. A tax year runs from 6 April one year to 5 April the next year. Keep the P60 in a safe place in case you need to fill in a tax return or check how much tax you've paid.
If you're concerned that you've paid or are paying the wrong amount of tax on a Retirement Annuity Contract, you can call the HMRC Retirement Annuity Contracts Helpline for advice on Tel 0845 366 7868, open from 8.30 am to 5.00 pm, Monday to Friday.
When you call, please have the following information to hand:
If you'd rather write the address is:
HM Revenue & Customs (HMRC) RACS
Leicester and Northants LPO
Saxon House
1 Causeway Lane
Leicester
LE1 4AE
After you get in touch you may be asked to fill in a form P161 'Pension Coding'. This form helps HMRC work out how to tax your income - including the income you get from your annuities. You can download the form by following the link below. You can also complete the form online. A link to this can be found in the 'Why it's important to fill in your Pension Coding form' article below.
Form P161 is also available in large print, Braille, CD-ROM , floppy disk or audio tape. To ask for the form in one of these formats you can call the helpline on 0845 366 7887 open from 8.00 am to 8.00 pm, Monday to Friday and 8.00 am to 4.00 pm on Saturdays.
HMRC also offer Pensioners Assistance. This is a one-to-one consultation with you at your Tax Office - or a home visit can be arranged if necessary. If you're interested in using this service please call the Retirement Annuity Contracts Helpline on Tel 0845 366 7868.
Why it's important to fill in your Pension Coding form
Go to form P161 Pension Coding
If you've been paying too much tax you can claim a tax repayment for up to six tax years. However, you must claim by 31 January towards the end of the sixth tax year.
For example, if you make a claim before 31 January 2012, you'll be entitled to be repaid back to April 2006. If you make a claim on 1 February 2012, you'll miss out on any repayment due to you up to April 2006 and your claim will only go back to April 2007.
For claims for tax overpaid after April 2007 you'll get your repayment through PAYE.
For claims for tax paid before April 2007 you'll be sent a refund. Note that you may need to send your annual statements to HMRC so that they can calculate the amount that's due to you.
Purchased life annuities pay a guaranteed income for life and can be bought with money from any source, not just pension income.
If you're getting a purchased life annuity it's probably being paid to you after basic rate tax has been taken off. If you don't think you should be paying tax on it - or if you think you should be paying less tax - because you're on a low income you can claim a refund. Follow the links to find out more.
Reclaiming tax on purchased life annuity income
Do you have to pay tax in retirement?
Find out more about lifetime annuities on the Money Advice Service website (Opens new window)
Pensions, state benefits and your tax code
Claim back tax if you've had too much deducted from your pension
Tax on company, personal or foreign pensions
Annuities on the Pensions Advisory Service website (Opens new window)
