HM Revenue and Customs (HMRC) has issued a warning to pensioners and pension savers about the risks of accessing their retirement pots without proper checks. The tax authority reminded individuals to review the rules around unauthorised payments to avoid falling foul of tax avoidance regulations.
In a post on Twitter, HMRC stated: "Check before you dip into your private pension pot – it could be tax avoidance and could cost you a lot more than you think." The department also shared a link to government guidance detailing what constitutes an unauthorised payment from a pension scheme.
The guidance explains: "The tax rules specify the conditions that need to be met for payments to be authorised. Any payment that does not meet these conditions is an unauthorised payment." Common examples of unauthorised payments include certain transfers of pension funds within a scheme. Scheme administrators are required to report any such payments to HMRC using an event report.
HMRC also warned about "unscrupulous firms" using misleading information to promote personal loans or cash incentives, encouraging savers to access their pension pots early. The authority cautioned: "Very often these firms say there is a legal loophole they can use so you do not pay tax. There is no legal loophole and these transactions are unauthorised payments."
