Pensions warning as Brits could be crushed by ‘scary’ tax code – check your payslip now | Personal finance | Finance

A hefty tax on a pension is something most people will want to avoid, to give them more for their retirement. Later in life, many people will want to start their drawdown – withdrawing money from their retirement fund. Some will do it for the first time this year to start their journey after work.

However, it could trigger what is known as an emergency tax code, which means a person will pay tax on all of their income beyond the basic personal allowance.

This can be a default error if HMRC does not have correct and up to date information about a person.

HMRC says those with an emergency tax code can check their payslip. If it is an emergency tax code, it will display:

But to avoid an unwelcome shock, there might be a sensible move to take with his retirement.

READ MORE: State pensions alert: You may have to retire later – DWP review

“But a better solution is to take a small initial sum when you start accessing your pension of, say, £100, to avoid a tax bill on the full amount you want to withdraw.

“Your second withdrawal can then be for the amount of income you need and that should be taxed at the correct rate.”

Those who end up paying an emergency tax should call HMRC as soon as possible.

From then on, the IRS should be able to process a refund to help people get back what they are entitled to.

This can be, for example, a person’s previous income or pension.

Those who have started a new job must provide their new employer with their P45 from their previous position.

If a person does not have one, their employer should ask them for the information they need instead.

Those who have just started collecting the state pension should check their tax code online to make sure it includes the state pension.

If this is not the case, Britons will need to update their details in the tax code online service or by contacting HMRC.

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