Page 44 Daily Mail, Wednesday, August 7, 2019Easy access Shawbrook Bank Easy Access 15 1.48
Fixed-rate bond Charter Savings Bank One-year fix 2.01Easy-access cash Isa Charter Savings Bank Easy Access Cash Isa 1.44
Fixed-rate cash Isa OakNorth Bank One-year fix 1.61ONLINE ACCOUNTS
PROVIDER ACCOUNT RATE %
BRANCH ACCOUNTS
PROVIDER ACCOUNT RATE %
Easy accessKent Reliance Easy Access Account 34 1.3
Newcastle BS Community Saver 2 1.16Fixed-rate bondMetro Bank One-year fix 1.9
Tipton & Coseley BS To October 31, 2020 1.6Easy-access cash IsaMarket Harborough BS Easy Access Isa 2019/20 1.25Newcastle BS Community Saver Isa 2 1.16Fixed-rate cash IsaMetro Bank One-year fix 1.55
Newcastle BS Fixed to August 24, 2019 1.5SYLVIA MORRIS’S
TYPE
TYPE
SAVINGSSTAR BUYS
OUR expert’s pick of this week’s top deals on different types of accounts
FOR MORE BEST-BUY SAVINGS TABLES GO TO: THISISMONEY.CO.UK/SAVEBy Sylvia Morris
Shock as saving rates cut by half
THOUSANDS of savers are earning a
pittance on cash languishing in more than
1,400 closed easy-access accounts.
Banks and building societies routinely
launch accounts and withdraw old ones from
sale. They then quietly reduce the once top-
paying rates, in the hope savers don’t notice.
It means that if you haven’t checked your
rate for a year or more, you may well be earn-
ing a lousy rate of between 0.3 pc and 0.1 pc.
Easy-access deals are by far the most
popular type of account and home to around
£750 billion, or £6 out of every £10, of our
savings. The other £4 is split between fixed-
rate bonds, notice accounts and cash Isas.
But loyal savers must not be fooled by any
headline rate advertised by their provider —
even if the account has the same or a similar
name to their own. You could be in an old ver-
sion of the same account, earning a far lower
rate than that promised to new savers.
Just last week, Nationwide reduced its
rates on closed easy-access accounts, such
as its Flexclusive Online Saver, from 0.6 pcon balances up to £10,000, to just 0.3 pc —
less than half the Bank of England base rate
at 0.75 pc. Rates on its Limited Access Saver,
Limited Access Online Saver and e-Savings
Plus dropped from 0.75 pc to 0.5 pc.
Meanwhile, Britannia Select Access Saver is
currently offering a rate of 1.4 pc. But this is
only paid on Issue 10 of the account, on sale
to new customers online, over the phone or
through Co-op Bank branches.
Some older issues of the account — which
limit you to making four withdrawals each
year — pay less than half this amount. If you
have Issue 8, for example, you’ll be earning
just 0.6 pc, while Issues 1 to 6 pay 0.7 pc.
Virgin Money pays 1.16 pc on its Virgin
Easy Access Saver Issue 32, now on sale.
But those in Issues 1 to 30 have seen their
rate cut to just 0.25 pc.
Or you could be in a bonus account, which
pays a top rate, but only for a year. Once theextra interest disappears, you may end up
earning as little as 0.2 pc. With both Post
Office and AA Savings — backed by Bank
Of Ireland — you will end up with 0.25 pc or
0.2 pc after a year. But the same providers
are offering new savers a much better deal.
Post Office Online Saver pays 1.15 pc to new
account holders and AA Savings 1.11 pc.
Halifax pays just 0.2 pc on its Instant
Saver and Web Saver, both now closed
accounts, but once top-payers. Lloyds Bank
Standard Saver also pays 0.2 pc.
Worse still are several old Halifax accounts
— Extra Income Saver, Bonus Gold, Liquid
Gold and Saver Reward — along with
Nationwide e-Savings at 0.1 pc. Savers can
earn nearly 15 times more interest by switch-
ing to a better deal (see table, below).
Anna Bowes, director at savings advice site
Savings Champion, says: ‘This problem is not
going to go away. Banks and building societies
will keep taking advantage of those sitting in
closed accounts.’
[email protected]Earn 3.8 pc on
kids’ deposits
YORKSHIRE BS has launched a
children’s regular savings account
paying 3.8 pc. Adults can sink £100
a month into the Child’s Regular
Saver, which will grow to £1,224.80
in a year with £24.80 interest.
But withdrawals can be made on
just one day in the year and the
rate is variable. Plus it lasts for
only 12 months, after which the
money is moved into a Child Saver
account, paying just 0.65 pc a year.
Halifax offers a better deal, at
4.5 pc fixed for a year with no with-
drawals. Putting £100 a month into
its Kids’ Monthly Saver would
mean £1,227, including interest,
after a year, at which point it is
moved into a Kids’ Saver paying
2 pc on up to £5,000.thousands of people who could
still be waiting for a rebate.
Figures from City watchdog the
Financial Conduct Authority
(FCA) suggest more than 200,000
people a year risk being overtaxed
when making withdrawals from
pension savings for the first time.
The 2015 rules allow over-55s to
dip in and out of their pension pot
whenever they like — providing
they belong to a defined contri-
bution scheme, where the value of
your plan is linked to investments,
rather than your salary.
Being able to make the odd
lump-sum withdrawal can be
useful if you need to cover one-
off payments, such as a child’s
wedding or a special holiday.
You can take a quarter of the
money in your pension as a tax-
free lump sum. Anything over
this is taxed at your usual rate.
But the problem is that the tax
office treats smaller one-off lump
sums as if they are a permanentincrease in income and applies an
emergency tax code. This results
in most being overcharged.
Tina Riches, of the Chartered
Institute of Taxation, says: ‘The
emergency tax code means you
can shoot up to a higher tax band
when you take a lump sum from
your pension, even if you should
only pay tax at the basic rate.’
You can still be overcharged
even if you haven’t taken the
whole of your 25 pc tax-free lump
sum. Here, HMRC should treat
a quarter of the withdrawal as
tax-free and the rest as taxable.
When you dip into your pension,
you can choose to take the whole
of your tax-free lump sum. After
that, your pension is said to be
in ‘drawdown’ and any extra you
take will be fully taxable income.
Or, instead of taking your tax-freelump sum, you can take staged
payments. Then 25 pc of each will
be tax-free and the other 75pc
taxable on top of your income.
This is called an ‘uncrystallised
funds pension lump sum’.A
LARGE part of the
problem is that the tax
is collected through the
Pay As You Earn (PAYE)
system, which is designed to tax
your monthly income, rather than
one-off sums. It means HMRC
assumes you will receive the same
amount every month from then on
— and you could be overcharged.
So, if you have pension income
of £5,000, £10,000 in earnings, and
take a fully taxable £10,000 lump
sum from your pension pot, you
should be taxed on £25,000.
Usually you would pay no tax on
the first £12,500 of your income —known as the personal allowance
— and then the 20 pc basic rate of
tax on the next £37,500. So you
would owe 20 pc on £12,500 (your
total income of £25,000 less your
£12,500 personal allowance) — or
£2,000 on your £10,000 lump sum
Instead, HMRC’s system means
over-55s end up paying a higher
rate of tax on more than half of
their withdrawal. Using our exam-
ple, you would pay no tax on the
first £1,042 of your lump sum — the
equivalent of one month’s personal
allowance (£12,500 divided by 12).
You’d then pay 20 pc basic-rate
tax on the next £3,125 (the basic-
rate tax band of £37,500 divided
by 12), which works out at £625.
Then you would pay 40 pc on the
remaining £5,833, which is £2,333.
It means you end up with a tax
bill of £2,958 — an extra £958. You
have to reclaim this, or wait for a
rebate at the year’s end. Former
pensions minister Sir Steve Webb,now director of policy at Royal
London, says: ‘It’s a scandal that
people legitimately accessing their
own money using freedoms given
to them by the Government are
routinely being overtaxed for the
convenience of HMRC.’
Tom Selby, senior analyst at AJ
Bell, says: ‘Tax on pension with-
drawals is a nightmare for savers.
Those not familiar with tax forms
and who can’t afford financial
advice are most likely to suffer.’
A spokesman for HMRC says:
‘You can claim back overpayments
and we will repay it within 30 days.
Anyone who does not claim will be
repaid automatically at the end of
the tax year.’ Use form P55 to
reclaim emergency tax if you have
taken part of your pension pot and
are not taking a regular income
from it. Use form P53Z if you have
taken all of your pension fund.
[email protected]P
ENSION savers are being
overtaxed at record levels
when they dip into their
retirement pots.
More than 200,000 over-55s
have clawed back nearly £500 million
since pension freedoms were intro-
duced in 2015.
But the taxman is pocketing on average
£2,355 too much when retirees make their
first withdrawal. This is because HM
Revenue & Customs (HMRC) charges
them a so-called emergency rate of tax.
To get their money back, savers must
then fill in a complex, nine-page form, or
wait up to a year for a rebate.
Experts say the process is ‘a scandal’
and a ‘nightmare’ for savers, many of
whom are unfamiliar with the tax system.
The amount of tax being reclaimed is
at its highest level since the pension
freedoms were brought in to allow savers
access to their retirement funds without
having to buy an annuity (a guaranteed
regular income).
Latest HMRC figures show around
17,000 people clawed back nearly
£47 million in tax between April and June
this year alone. This is compared to
£29 million claimed by 14,000 savers in
the same three-month period last year.
And this does not include the tens ofBy Sylvia Morris
Have you been
snared by the
£500 MILLION
pension tax trap?
44 MoneyMail
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