Tax on short service refunds is 'convoluted'

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Changes to the way HM Revenue and Customs taxes short service lump sum refunds is anything but pensions simplification, says Aegon Scottish Equitable.

In its latest pensions newsletter, HMRC addresses the way tax is calculated on lump sum refunds given by pension schemes if a person has been a member for two years or less. Rachel Vahey, head of pensions development at Aegon Scottish Equitable, says the original rules which were quite simple and straightforward have now been changed to something much more complicated. Originally when a pension scheme paid a refund to a member who had been with the scheme less than two years, the sum was taxed at 20% to take into account the previous tax relief on the contributions. However it seems H...

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