News in brief... the emergency-tax trap

⬤ Pensioners claimed tax refunds worth £22m in the first three months of the year alone, after being charged too much because of a longstanding flaw in HM Revenue & Customs’ computer systems. The problem occurs when pensioners make their first withdrawals from pension funds. HMRC’s system is unable to distinguish between one-off withdrawals and regular payments, so it applies emergency tax codes and takes too much tax. The issue can be avoided by making only small withdrawals when accessing your pension savings for the first time, but many people don’t know about the problem.

⬤ Does your pension scheme protect you from inflation? While many private pension plans promise to increase pensions by the cost of living each year, the majority also cap these rises at a certain level, often 5%. This limited price indexation (LPI) means pensioners end up worse off in real terms when inflation rises above the cap, so it’s important to check the details of your scheme carefully and know whether your income is likely to keep pace with prices this year.

⬤ HSBC is facing a renewed wave of protests from workers and pensioners about the clawback provisions in parts of its occupational pension scheme. The bank allows pension scheme members to start taking their pension before they reach state pension age, but then reduces the value of the pension once the member starts to receive their state benefits. Around 50,000 workers at HSBC are affected – mostly former members of the Midland Bank pension scheme. A resolution to end the clawback was defeated at last week’s annual general meeting, with 94% of votes cast in favour of retaining it.