Annuity PAYE overcharges pensioners

The Government has repaid £36m in overpaid PAYE annuity income tax. As many advisers will know, when you set up regular withdrawals from maturing pension funds, the income payments or withdrawals are not taxed on a cumulative basis. This is unlike PAYE where employers use a tax code which gets adjusted as income goes up or down, and which takes account of bonuses and one offs via the annual P60.

So at present pensioners get taxed as if they make the same withdrawal each month, and they get the same tax if they suspend or reduce withdrawals or space them out, unless their provider has been provided with a tax code to use for them.

Adviser note: check the PAYE tax deductions for pension withdrawing clients. And liaise with their accountant, or consider doing their bookkeeping and tax returns yourself.

Pension News