Question to the HM Treasury:

To ask Mr Chancellor of the Exchequer, if he will instruct HMRC to made individual assessments on the tax status of non-income tax paying people who withdraw money from their pension pots.

The pension flexibility rules allow individuals with money purchase pension savings to withdraw lump sums as they wish from age 55.

Individuals can now choose whether to take the entire funds in one lump sum, 25% of which is tax free and 75% taxable at their marginal rate of income tax as pension income. If they would prefer to take their savings in a number of smaller amounts, 25% of each payment is tax free and 75% taxable.

Pension income is taxable under PAYE. If the pension payer has a tax code from HMRC they should operate that code in the normal way. If no tax code is held, the emergency code should be used. The emergency code gives a 1/12 of the personal allowance and each of the tax bands.

If this means that the individual pays more tax than is ultimately due, HMRC have put in place a process for individuals to submit an in year claim for the overpaid tax. These claims are usually paid within 30 days. Anyone who does not make a claim, would automatically receive any overpaid tax after HMRC makes their annual reconciliation of individual tax records.