Pension savers warned of ‘pitfalls’ of withdrawal – you may face ‘over-taxation’ on cash | Personal Finance | Finance

Over-taxation

Initially withdrawing from a pension in the form of taxable lump sums is likely to mean a pension provider taxes the income on a “month one” basis.

This can often result in higher, or even additional rate, tax being deducted from the payment, even if the person is a basic rate taxpayer.

Mr Smith said: “This effectively means that the proportioned personal allowance would be £1,047.50, and the basic rate tax band £3,141.66, which combined is only £4,189.16, with anything above this taxed at the higher and potentially the additional rate of tax.

“Any overpaid tax should be refunded to the individual, but it could take months, or even years for this to be identified and paid.