We all know people don’t understand pensions

Here are 38 million reasons why FT readers may be less inclined to save for their retirement following their bowl of muesli this morning

Jo Cumbo’s report is a coiled spring of restrained wrath.

Since 2015, tax authorities have chosen to tax the first “flexible” withdrawal a saver takes from their pension on an “emergency” tax code basis. This means they do not take into account any tax already paid by the individual throughout the year. The arrangement has resulted in shock tax bills for those unaware of the tax quirk.

Tom Selby points the finger of blame straight at HMRC

“It is simply unacceptable that the government has failed to adapt the tax system to cope with the fact that Brits are able to access their pensions flexibly from age 55, instead persisting with an arcane approach which hits people with an unfair tax bill, often running into thousands of pounds”

So why, 10 years after drawdown became the lingua franca of pension “decumulation” is it still treated as a tax anomaly?

Let’s be clear, people are not missing out (as they are missing out not claiming higher rate tax relief from RAS schemes or not getting basic rate relief at source from net pay ones).

HMRC said: “Nobody overpays tax as a result of taking advantage of pension flexibility. “We will automatically repay anyone who pays too much because they’re on an emergency tax code. Individuals can claim back any overpayment earlier if they wish.”

And if you are smart enough  to google , you can find a page like this that links you to the right forms which “provided you fill the forms in right” will get you your overpaid tax back within 30 days. (thanks THP chartered accountants).

But that’s a lot of hassle and worry and clicking and I reckon most people just sit and stare at “tax deducted” and utter wtf under their breath.

It needn’t be like this

95% of the pension industry’s time is spent cajoling us to save more, invest better and make sure that we don’t spend our money so quickly that we run out when we get older.

Putting aside the self-serving reasons for this, it is clear that very few people who comment on pensions are pensioners or even wannabe pensioners with pots.

And so the common empathy is missing.

Frankly Mr and Mrs “I want my money back”, you can go sit in that corner till I come to you and if you think we’re going to make it easy to drawdown, think again

You don’t save for a pension to be frightened of taking it. A pension should be celebrated but seldom is.

When I got my first pension payment from the company that was good enough to let me have a defined benefit, my tax was taken from me as if it was extra salary and I didn’t pay a penny in emergency tax. Of course the HMRC are all in defined benefit schemes like mine.

Just as most who run DC pension pots don’t care much about your emergency tax problems, neither do HMRC, which is why they don’t write the code to get you paying the right amount like they have for themselves. It’s another disconnect, based on the problem being one stage removed from their actual experience.

There are of course ways round paying emergency tax. You could buy an annuity and soon you’ll be able to return your savings to an occupational scheme (more on this anon). Pensions paid from occupational pensions and annuities (not the same thing), don’t suffer the same tax problems. But I wouldn’t chuck drawdown out because of some teething problems with tax.

We need to get better at this

An estimated 700,000 people reach 55 each year, about the same reach the current state pension age  (66 and remaining so till May 2026).

Each year about that number start thinking ” I can have my money now” and most start taking it (crystallising their pension). But the act of crystallisation and the crystallisation event are sufficiently traumatic that few celebrate being paid to not go to work.

Is this really the best way to advertise pensions to kids, having Mums and Dads wandering around with calculators working out why the money they were saving is now subject to taxes they don’t understand and can’t control?

Like it or not (and I don’t like it), most of us are going to drawdown most or all of our pots (unless something better than an annuity comes along). So most people will continue to feel like Andy Haldane and regard their pension pot as a mildly toxic tax-bomb.

It takes a great financial journalist to tell the story properly, but we have been waiting too long for this emergency fix to be fixed properly. I’m with Jo and Tom, let’s make drawing money from a pension account , business as usual – not some aberrant behaviour requiring emergency taxation.