Savers ‘sensible’ during Covid as pension withdrawals remain flat

In some cases, the pension provider will already have a proper tax code for the beneficiary, if the saver has previously withdrawn money from their pension during the tax year.

However, where the provider does not have the correct tax code for the individual – which is in the majority of cases - withdrawals are taxed using a higher rate emergency tax code, which routinely results in an excessive tax deduction that has to be reclaimed later.

Andrew Tully, technical director at Canada Life said: “The pension tax system was never adapted to the way people are using the flexibility of the pension freedoms so have to complete one of three separate forms to reclaim tax.

“One way to ensure you don’t pay too much tax is to request a small withdrawal from your pension provider, of say £100 initially.

"This will trigger the generation of a tax code from HMRC which is automatically sent to the pension provider. Subsequent withdrawals should then be taxed more accurately.”

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