HMRC issues new pension warning – ‘it could cost you’ | Personal Finance | Finance

HMRC has issued a fresh warning to those paying into their pensions, as one action could put them at risk of trouble. Millions of working Brits regularly pay into their pension pots for retirement. When money is tight, it might be tempting to take some of that money and use it for something more urgent than retirement. But there are strict tax rules around this.

HMRC has issued a fresh warning about unauthorised pension payments, revealing that they can result in you paying more tax and losing money. In fact, there are three taxes you could end up paying on pension payments that are taken out before you retire. “It could be tax avoidance and could cost you a lot more than you think,” HMRC wrote in a recent social media post. There are certain conditions that need to be met for a pension payment to be made.

If these conditions aren’t met, then it is considered an unauthorised payment. Unauthorised payments are subject to an unauthorised payments charge, an unauthorised payments surcharge and a scheme sanction charge.

HMRC has listed incidents in which a payment would be considered unauthorised. They are:

• Trivial 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, except when:
  • The member retires due to ill health
  • If before 6 April 2006, the member had the right under the pension scheme to take their pension before age 55

Additionally, HMRC warns that “certain movements of pension funds within a pension scheme are also classed as unauthorised payments”. 

It has also warned Brits over “unscrupulous firms” that are using misleading information to promote personal loans or cash incentives and enticing savers to unlock their pension pots early. These firms will often say there is a legal loophole through which you won’t have to pay tax, but that is not the case.

The unauthorised payments charged is paid by members when the unauthorised payment is made to or for a member, even if they didn’t receive the payment. Meanwhile, the unauthorised payments surcharge is usually due when a member gets unauthorised payments of 25% or more of their pension pot in a year, or when an employer gets unauthorised payments of 25% or more of the value of the pension scheme in a year.

The scheme sanction charge has to be paid on most unauthorised payments, unauthorised borrowing and investments in ‘taxable property’.