Help! Pension firm failed to pay my mum with dementia £52k over four years – now HMRC has taken £17k in higher rate tax: Steve Webb replies

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My late father had a corporate pension, and when he passed away, the pension went to his widow, my mother.

Due to my mother’s dementia (I have a power of attorney), I found that the pension has not been paid since April 2019.

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The administration has apologized to me and the pension owed from the above date to the present is £52,432.05.

When I checked with my mum’s bank they said they had received a £35,321.24 payment and I asked where the other £17,110.81 was and they said it was deducted as income tax.

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Double whammy: The pension firm failed to pay my mum with dementia £52,000 over four years – now HMRC has taken £17,000 in higher tax rates on her late lump sum.

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The administration forced my mother to pay a higher income tax rate for not receiving her pension, and obviously I’m far from happy about that.

All this time there was no interest on the pension, since my father paid it into a savings account and not into a checking account, we have to take into account inflation and the higher standard of living that my mother could have had.

Obviously, this caused great distress, and my mother received a letter from the Internal Revenue Service charging her with a 40 percent income tax.

This is entirely the fault of the admins and I would appreciate your comments on this.


Steve Webb replies: I was sorry to hear about the problems you and your mother had with her widow’s pension.

I contacted the admins on your behalf and they emailed you explaining what happened.

Apparently there was a problem with your mother’s bank details that caused them to suspend payments in March 2019.

New bank details were provided in June 2019, but the pension could not be returned and it was only renewed at the end of 2022.

Steve Webb: Find out how to ask a former Pensions Minister about your retirement savings in the box below.

Steve Webb: Find out how to ask a former Pensions Minister about your retirement savings in the box below.

In their letter, they acknowledged that since the pension was paid in a lump sum instead of monthly since 2019, “your mother paid more taxes than she could have.”

However, they said they have no other choice but to deduct the tax and you will have to deal with HMRC about this.

The administration also said in their letter that they noticed another mistake and that your mother is due an additional payment for the missing pensions due in April and May 2019, which were not paid, therefore, an additional payment will now be made.

They also offered you £1,000 in compensation for the suffering you and your family have suffered.

You wrote to HMRC about the lump sum tax treatment and pointed out that since this applies to previous years, not all of them should be taxed this year (i.e. your mother was in the higher tax bracket).

Unfortunately, HMRC simply said that this would all be resolved at the end of the tax year and could not help at this stage.

This put you in a difficult position to decide whether to demand proper compensation from the administrators or hope that HMRC will eventually sort things out.

I contacted HMRC and they gave me the following comment regarding your mother’s tax position: “We wrote… explaining that her tax cases would be resolved at the end of this tax year and shared the information she would need to send so we could complete a full review of her finances.

“This is a standard process in such cases, so we can ensure that clients do not end up paying more taxes than they should.”

While this comment did not really clear things up, HMRC also advised me that if a pension fund has paid a client a lump sum that includes outstanding pensions owed for previous tax years, the client can ask HMRC to reallocate them to each individual. year, which they will do at the end of the tax year.

In other words, if everything is in order, you will be able to contact HMRC after April 5th and ask them to spread the lump sum for 2019/20, 2020/21 and 2021/22 as the lump sum relates to pensions payable. in each of these years.

If this is done, it should mean that your mother no longer has to pay the higher tax rate on any of these payments.

Ask Steve Webb a question about retirement

Former Pensions Minister Steve Webb is the uncle of This Is Money Agony.

He’s ready to answer your questions whether you’re still saving, in the process of quitting your job, or juggling your finances into retirement.

Steve left the Department of Work and Pensions after the May 2015 elections. He is currently a partner in the actuarial and consulting firm Lane Clark & ​​Peacock.

If you would like to ask Steve a question about pensions, please email him at [email protected]

Steve will do his best to reply to your message in the next column, but he will not be able to reply to everyone or conduct private correspondence with readers. Nothing in his answers constitutes regulated financial advice. Posted questions are sometimes edited for brevity or for other reasons.

Please include a daytime contact number in your message – this will be kept confidential and will not be used for marketing purposes.

If Steve can’t answer your question, you can also contact MoneyHelper, a government-supported organization that helps the public for free with pensions. It can be found Here and his number is 0800 011 3797.

SteveHe gets a lot of questions about government pension projections and COPE, the contracted pension equivalent. If you write to Steve about this topic, he answers a typical reader question Here. It includes links to several of Steve’s earlier columns on government pension projections and contracting that you may find helpful.

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