Pension fund taxed at 45%?

[IsolaPribby]

I'm looking for some advice with regard to my deceased mother's estate. After she died we discovered that she had a couple of pension plans which she hadn't claimed on.
The value of the fund on one of these is approx £14k, and the pension company are saying this needs to be taxed at 45%. This seems very high to me.
Can anyone advise if this sounds reasonable, or where I should go for advice? Her savings and other pension funds total about £75k.
Happy to provide other details as needed.

You could see if the government’s free pension advice service would help:

www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/?source=pw

I think I would contact the pensions company and ask them to explain why the 45% tax applies in this case. Was your mother over pensionable age. And had she started to withdraw a pension from the other fund.

You claim back the excess tax as she was clearly over 75 when she died.

@Viviennemary

I think I would contact the pensions company and ask them to explain why the 45% tax applies in this case. Was your mother over pensionable age. And had she started to withdraw a pension from the other fund.

Pensionable age and crystallisation is irrelevant. Her age though does matter

My mother was 81 when she passed away. She had not claimed against this or her other private pension.

Was this a money purchase pot or a DC, AVC, personal pension? i.e. anything other than a final salary

The tax is due to the 1/12th system and it is paid at the highest of YOUR tax codes. You can ask for it to be transferred rather than paid out in one lump sum. You can draw it down more tax efficiently.
Contact an IFA

@Dindundundundeeer I'm sorry but I understand nothing about your questions!
We only found details of these pension plans after my Mum's death, on finding many unopened letters. The providers were asking her what she wanted to do with her plans on retirement, but she never answered, so they started paying into holding accounts.

I think the most likely answer is that the provider is applying an emergency tax code. Because your mother was 81 when she passed, pensions would be taxed according to:the beneficiaries’ income. It’s a weird quirk of the system.

So they’d be deducting a lot of tax now, as they don’t know what tax the person receiving the money should be paying, but whoever the money is paid to will be able to claim some tax back from HMRC if their income for the rest of the year doesn’t take them into the 45% tax bracket.

Sounds like she may not have claimed, but they paid. You need advice but ensure you take it promptly as 2 years after her death it’ll be taxed regardless!

Thank you everyone. I am a little bit apprehensive about getting an independent financial advisor. Are they expensive?

As @Dindundundundeeer says it’s because the money you draw down from the pension is counted as salary and therefore you will be taxed at your income tax rate

As others have said, if a person dies on or after their 75th birthday then the beneficiaries of their remaining pension pot are taxed at their marginal rate.

The pension company taxes at emergency rate and if you are a lower rate tax payer you can claim some tax back from HMRC.

They are asking for the payees NI number, so does that mean that I'll get a rebate automatically, or will I need to specifically apply?
Also, to confuse matters somewhat, my sister is a joint beneficiary, so will her portion be taxed differently to mine?
Apologies for all the questions, this is all a very steep learning curve for me!

You need someone to look at the paperwork. It’s not clear exactly what has happened here. It may be a scheme pension in payment or a Dc pot. Ask if an IFA will do an hourly rate. I’d need less than an hours to check and see what’s going on, but unless you know what the vocabulary is, it’s hard to get the gist here.

Ok so if there are two equal beneficiaries, both will be taxed separately.

The national insurance number is required because the company will let HMRC know who has been paid, how much each, and if applicable, how much tax has been deducted.

You will have to contact HMRC yourself to claim any tax back.

@whiteroseredrose thank you, that is very clear.

I will look up how to claim back from HMRC.

@whiteroseredrose

so they started paying into holding accounts

This made me consider a scheme pension in payment and so the tax position may be different. I’d want to see the P60’s

@Dindundundundeeer I have looked through the correspondence, and there is a letter which states that the policy has been contractually vested to a standard annuity, with payments being made to a holding account.
The most recent P60, and all previous, show tax deducted as zero.
There are also Lifetime Allowance Certificates, these state the policy is a Retirement Annuity Contract, and the total percentage of the standard Lifetime Allowance used is 0.78%.
Does any of this make sense?

Ah ok, so not standard pension rules. I’d need to check the technicals on this, as not sure if your tax rate or highest marginal rate applies.

I would call the pension company and ask if your tax rate applied. If so you can reclaim any tax

@Dindundundundeeer thank you!

I really appreciate all your help and advice!