Unprotected Part of Personal Pension paid to Official Receiver but not enough tax deducted at source

gardening_nanny

Hello,

I am hoping someone can shed some light on this please as I can't find much information online as the laws have changed now so everything that comes up refers to the new laws.

My husband was made bankrupt in 1997 (less than £10,000 debts).  A charge was put on his personal Prudential pension at that time (the law changed in May 2000 and this no longer happens).

He is now 58 but still works full time and paying 40% tax so not intending to touch any pensions.  He has received a couple of letters from the company working for the Official Receiver over the last year or so asking him to sign the paperwork to release the unprotected part of his pension but as he's not ready to retire he has not responded.  It said that Prudential needed his signature to release the funds.

It looks like they have now released the unprotected part of his pension without his signature to the company working for the official receiver as an Uncrystallised Fund Pension Lump Sum (UFPLS) which means they should have deducted tax from 75% of the funds at source using his current rate of 40% and paid it to HMRC before paying the balance to the company.  

They have not deducted enough tax before paying the balance to the company and now HMRC want to change his tax code to deduct the shortfall of £1,000 from his wages!  We have only found out about all of this because of this change in tax code, otherwise we would be none the wiser as Prudential have not contacted him.

The fact is it should have been deducted from the unprotected pot before the balance was paid to the company and as he has never received this money he shouldn't have to be liable to pay the extra £1,000 from his wages, it should be paid back by the OR company.

Where do we stand and whose responsibility is it to pay this money to HMRC please.  Thank you for getting this far as I'm aware its long winded.

xylophone

He has received a couple of letters from the company working for the Official Receiver over the last year or so asking him to sign the paperwork to release the unprotected part of his pension but as he's not ready to retire he has not responded.  

If matters have gone awry, he bears some responsibility?

Is it possible that as your husband had passed the age when he could access the pension and had not co-operated with the OR, a court order was obtained to enable the funds to be taken?

If he had co-operated, would it have been possible to crystallise enough of the pension to be able to take from it  only a tax free lump sum sufficient to pay the OR?

Let us suppose that instead of  the OR's deducting the money from the pension, your husband had been required to take sufficient UFPLS from the pension company and then repay the OR.

It is quite possible that the amount of tax deducted by the pension company would not have been correct - this would normally have been rectified by HMRC when his tax paid/unpaid was rectified at the end of the tax year.

If tax was owing, he would have been required either to make a payment in full or his tax code would have been adjusted so that tax could be taken in instalments over the next tax year.

Is this the equivalent of what is happening now?

And another thought, as in effect he has accessed income from the pension, is he now subject to the  MPAA in respect of any DC pension to which he may be contributing?

Marcon

gardening_nanny said:

The fact is it should have been deducted from the unprotected pot before the balance was paid to the company and as he has never received this money he shouldn't have to be liable to pay the extra £1,000 from his wages, it should be paid back by the OR company.

The fact is that Prudential wouldn't have known he was a higher rate taxpayer. They would - correctly - have followed the standard procedure and applied an emergency tax code. I suggest he liaises with the OR company to discuss - it can't be the first time this has happened. Even so, they are likely to tell him to seek his own specialist advice (which is unlikely to be found on a public forum such as this, given the niche area concerned).

Your husband's failure to respond to letters from the OR might be understandable, but he now has to deal with the consequences - one of which is mentioned in the post above: whether he has triggered the Money Purchase Annual Allowance. This matters if he has/wants to contribute more than £10K to a defined contribution pension scheme in a tax year (the £10K includes personal contributions and any tax relief on those, plus any employer contributions). If the answer to that is 'yes', he needs to seek specialist professional help as a matter of some urgency - 'google and guess' won't cut it.

sheenas

The tax code applied is simply the paye rate applied. He would need to fill in a tax return and payment 
tax owed. I am not sure where that leaves him in terms of the bankruptcy. I would see if the drawdown can be considered as part or all of a tax free drawdown rather than taxable.