HMRC warns pensioners face being 'clobbered' with 70 per cent penalty
HMRC has warned pensioners they face being "clobbered" with an eye-watering 70 per cent penalty. New Labour Party Chancellor Rachel Reeves may bring in a shake-up to pension tax-free allowances, it has been reported, ahead of the Autumn Budget.
This could include chopping the sum you can withdraw from your pension pot without paying tax. Currently, you're at liberty to extract 25 per cent of your pension pot tax-free, capped at £268,275.
But peopke aiming to reposition their pension wealth to dodge higher tax rates may confront an extortionate 70 per cent tax hit. Helen Morrissey, head of retirement analysis from Hargreaves Lansdown, highlighted the risks of pulling money out of your pension.
READ MORE State pensioners waking up to free £150 payment that's 'automatic'
She explained: "Ripping money out of a pension now potentially deprives it of future investment growth and could leave it subject to a whole host of taxes that it otherwise might not be, such as inheritance, capital gains, dividend and income tax.
"We could also see people try to reinvest surplus tax-free cash they’ve taken back into their SIPP and potentially fall foul of recycling rules that clobber them with a fine." Ms Morrissey also had a warning for those thinking of moving their pensions cash into savings accounts. She said: "Even if the money is put in a bank account, there is a huge risk its purchasing power is eroded over time by falling interest rates."
The expert called for clear answers about pension tax changes, warning that the rumour mill could be harmful. She stated: "This ongoing speculation about potential changes to such a fundamental part of the system is hugely damaging.
"People need certainty to make long-term plans and they just don’t have that right now. The sooner changes such as raiding tax-free cash, can be ruled out, the more people can focus on the long term again."