HMRC Warns Pensioners on Tax-Free Withdrawals

State pensioners who withdrew 25% of their pensions due to concerns over possible taxation in the recent Budget are now facing potential tax bills, as HMRC has warned that they cannot return these tax-free lump sums without incurring 'unauthorised payments charges'. Typically, pensioners can withdraw up to 25% tax-free from their retirement funds, but HMRC's recent guidance contradicts the common industry practice of allowing a 30-day cooling-off period for reversing such withdrawals. Experts argue that this creates confusion, particularly as many rushed to withdraw funds prior to the autumn Budget amid fears of a reduction to the tax-free allowance, which ultimately did not occur. Critics of HMRC's stance, including pension experts and former officials, call for clearer communication between HMRC and the FCA to protect consumer rights. They emphasize that the inability to reverse withdrawals is detrimental to savers who may have acted out of fear rather than informed decision-making. Overall, this situation highlights a significant disconnect between regulatory rules and industry practices, leaving many pensioners vulnerable to unexpected tax implications.