Claims from NFU Mutual were reported in the Daily Telegraph today saying people using new freedoms to withdraw pension savings could be taxed at 45 per cent - even if they are withdrawing as little as £17,834. It said 40% could be paid on as low an amount as £4,700.
These suggestions have been described as "scaremongering" by HM Revenue & Customs.
NFU said its analysis of draft guidance from HMRC showed pension providers will be instructed to use an emergency tax code on flexible withdrawals from pensions unless they receive a P45 or a tax code for the person making the withdrawal. But HMRC told Financial Planner Online it is unlikely many such cases will happen.
Even small withdrawals from pensions next April could trigger the highest rate of income tax, it said.

{desktop}{/desktop}{mobile}{/mobile}

Sean McCann, a Financial Planner at NFU Mutual, said: "This could result in the bulk of some pension withdrawals being taxed at 40 or 45 per cent. Some people may never have paid such a high rate of income tax in their working lives and may not be able to reclaim their overpayment until at least April 2016.
"This is unexpected and will alarm people planning to cash in some or all of their pension next year. The new rules may make pensions more flexible and generally more attractive, but there are some pitfalls."
An HMRC statement read: "This is pure scaremongering - emergency tax codes won't be applied to pension payments as long as people provide their tax codes, which can be found on any payslip."
NFU said there were still some unanswered questions which mean the tax consequences of accessing a pension from April 2015 without first making a plan or taking advice are likely to be significant.

Get FREE daily news summaries direct to your inbox. Sign up on the homepage now.

Follow us on Twitter and get frequent news alerts @FPM_online.

Or follow Editor Kevin O'Donnell - @FPM_Kevin or staff writer James Nadal - @FPM_James.

For the latest Sipp, SSAS and retirement news visit our sister news site www.sippsprofessional.co.uk and on Twitter @SippsPro.