Old Mutual Wealth spots loophole for pensions withdrawals
Emergency taxation on pension withdrawals can be avoided by British savers setting up three separate smaller pension pots, according to Ian Browne, pensions expert at Old Mutual Wealth.
Browne explained that if a provider creates three funds of £10,000 or less, any withdrawals are charged at the basic tax rate.
Browne said: “If you have an emergency and you have to make a withdrawal very quickly, reclaiming that tax takes weeks or even months, which actually means that you need to withdraw more than you need to get that payment out very quickly.” He added that the PAYE system “is based on the assumption that regular payments are going to be made to the individual.”
He added that Old Mutual Wealth “as a pension provider that does this, make sure that the advisers we work with are aware, but we do find that we have to repeat the message, because they are faced with a lot of information from lot of different providers.”
HM Revenue & Customs (HMRC) has reported that £305m had to be repaid to retirees where too much tax had been collected from those making flexible withdrawals from their pension savings since the start of pension freedoms in the UK.