While many business owner-managers over the age of 55 will have welcomed the new pension freedoms, Wealden Business Group member Martin Tickner of Financial Choices warns that the newly-liberalised regime could come with a nasty tax sting.
In a briefing to WBG members, Martin explained that anyone who applies to withdraw a large chunk from their pension pot – or indeed, the whole lot – might receive the money less an unexpectedly high deduction from the taxman.
He cited an example, provided by the Prudential, of Karen, a 55-year-old woman with an £80,000 personal pension fund, who wants to withdraw it all to fund ‘holidays of a lifetime’ with her partner.
While Karen might expect to lose £13,403 in tax, it’s quite likely that the actual deduction would be £25,447 – almost double – because the tax office could deem that the withdrawal should be subject to emergency tax, as her pension provider may not have obtained her normal tax code.
Of course, the difference is repayable by HMRC, but Martin supported the Pru’s view that Karen could face a delay, as the tax office is swamped with demands from pensioners wanting to withdraw large lump sums. Indeed, there has already been a storm of anger on Twitter from pensioners who have been hit by emergency tax.
Martin said that there were simple ways of avoiding this tax ‘sting’, but that anyone planning to exercise their rights of withdrawal under the new pensions system should talk to a qualified financial adviser.
If you would like advice on pensions or other financial matters, you can contact Martin Tickner of Financial Choices on 01580 766400, or email firstname.lastname@example.org