Pension freedom confusion has led to telephone chaos as more than a million retirement savers have blocked the HM Revenue & Customs (HMRC) help line with calls about working out the tax they pay on taking cash from their funds.
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Frustrated callers had to spend up to 10 minutes trying to negotiate option menus before their calls were cut off.
Eventually, the service was replaced with a recorded message diverting callers to the free advice service Pension Wise.
Pension providers also reported an influx of calls – financial firm Aegon reported the number of calls was up 42% to more than 3,000 on April 7 – the first day back to work after the start of the financial year and the day after pension freedom started.
However, this proved even more frustrating as Pension Wise only gives general tax advice and cannot offer personal tax calculations.
Automatic hang up
“Our lines were busy as this was the start of the tax year and the start of flexible pension access,” said an HMRC spokesman.
“We are sorry not every call was dealt with.”
HMRC has a call handling system that automatically hangs up on queued callers if the wait hits certain limits.
The problem for retirement savers who want to access their pension cash is how to work out the tax they will pay.
Depending on the flexible access option, either the first 25% lump sum is tax free with income tax due on subsequent payments or the first 25% of each payment is tax free and income tax paid on the balance.
The issue is how the tax is tracked and calculated.
HMRC is demanding that providers can only work out the tax due accurately if they are provided with a P45 for the year to date. If the saver cannot provide a P45, tax is deducted under an emergency coding.
Under the emergency coding rule, the tax deducted from a £30,000 pension withdrawal is £8,970 for a basic rate taxpayer – £4,470 more than is due. A higher rate taxpayer would have paid £30 too little.
Pension providers say they can only follow the rules laid down by HMRC and if the customer has a P45, tax is calculated according to the figures provided. If not, emergency coding is followed.
“Anyone with a valid P45 will not have a problem with paying the correct amount of tax,” said the HMRC spokesman.
“If they are taxed under emergency coding rules, we will refund any over payment within 30 days of receiving a notification.”
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