You could be breaking HMRC rules depending on how you manage your pension
Pensioners and pension savers have been warned by HMRC to be careful about how they access their pots. The tax authority reminded people to do some checks before dipping into their retirement savings. There are several rules to read up on around unauthorised payments to avoid being caught out.
In a post on Twitter, HMRC said: “Check before you dip into your private pension pot – it could be tax avoidance and could cost you a lot more than you think.” The department also shared a link to the Government website with information about what counts as an unauthorised payment from a pension scheme.
What activities are classed as unauthorised payment from pension scheme?
The guidance states: “The tax rules specify the conditions that need to be met for payments to be authorised. Any payment that does not meet these conditions is an unauthorised payment.”
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The advice pages shares some common examples of payments that are classed as unauthorised. These include:
- Small lump sums in excess of £30,000
- Continued payments of pension after the member’s death
- When a scheme realises it incorrectly calculated the amount of the member’s pension pot following a transfer of funds or purchase of an annuity and the balancing payment is made directly to the member
- Most lump sum payments to cash-in or access pension funds before age 55. Exceptions include if the member retires due to ill health or if before April 6, 2006, the member had the right under the pension scheme to take their pension before age 55.
Some transfers of pension funds within a pension scheme will also be classed as unauthorised. Scheme administrators are obliged to report any unauthorised payments to HMRC using an event report.
The Government guidance also warns that some “unscrupulous firms” use misleading information in promoting personal loans cash incentives, to try and get pension savers to access their pension pots early. HMRC warns: “Very often these firms say there is a legal loophole they can use so you do not pay tax.
“There is no legal loophole and these transactions are unauthorised payments.”
