Correct tax treatment of pension transfer value correction payment from pension provider

I am 45 and recently transferred a pension from one provider to another. A few months later I received a letter with a cheque for ~£2000 noting there had been an error in the valuation at the transfer point, and they'd made a transfer that was too small for the fund actual value. 25% of this amount had been paid to me tax-free, and 75% taxed at basic rate. At the same time they issued a P45 detailing the 75% of the amount and the tax paid on it. I want to make sure that this is the correct tax treatment, as being under the age of 55 I understood that any withdrawal from the pension scheme would be taxed at up to 55% prior to 55, and this correction seems to constitute a withdrawal of sorts. If the pension company are in error I'd like to be able to point them to the correct procedure, and I'd like to have saved the information about the correct treatment of this amount for my records should any query later arise. I found this information here which seems to imply the payment would be considered unauthorised, and subject to 40% tax (as it was less than 25% of the value of my pot): https://www.gov.uk/guidance/pension-schemes-and-unauthorised-payments#what-is-an-unauthorised-payment "Common examples of situations where payments are classed as unauthorised include:... when a scheme realises it incorrectly calculated the amount of the member’s pension pot following a transfer of funds or purchase of an annuity and the balancing payment is made directly to the member" This seems to be exactly my situation. The provider has mis-calculated the value of the pension pot at transfer, and paid me the balancing payment directly. It appears the rate is not 55%, but 40%, because it's not 25% or more of my pension pot. "The unauthorised payments charge Where the unauthorised payment is made to or for a member it’s the member who’s responsible for paying the tax charge – even if they did not receive the payment... The rate of the unauthorised payments charge is 40%.". I'd appreciate clarification as if I'm now due to pay extra tax on this amount then the pension provider have significantly disadvantaged me due to their error.

Hi

You will be resposible for paying the unauthorised payments charge as from your details, the payment meets the conditions of an unauthorised payment.

Thank you

Thank you. The pension provider have got back to me and claim the payments are authorised under the following legislation. which seems to fit the circumstances: "The legislation that allows us to make a payment of this kind is known as ‘Small lump sum payments made after transfer out – Section 164 (1) (f) F Finance Act 2004 – Regulations 6 and 7 - The Registered Pension schemes (authorised payment) Regulations 2009 SI 2009/1171.' which is known in these regulations as ‘ relevant accretion’. However, as a part of this, we are required to deduct PAYE tax from the payment which can be claimed back by the customer if they are a non-tax payer." Can you confirm this? It seems the information is directly at odds with the broader information that I found stating: "Common examples of situations where payments are classed as unauthorised include:... when a scheme realises it incorrectly calculated the amount of the member’s pension pot following a transfer of funds or purchase of an annuity and the balancing payment is made directly to the member". This bit in particular of the legislation they pointed me at seems to be the situation described: "after that transfer, there was a ‘relevant accretion’ in the scheme for the member (whether still living or dead), meaning: a payment is made into the originating scheme in respect of the member for whom the transfer-out was made (this will typically apply to money purchase benefit rights), and / or there is a further allocation of value to the ‘member’s arrangement’ above the value which the administrator had expected the sums and assets held for the purposes of that arrangement to be worth when the transfer-out was made - as might occur for example, with a corrective revaluation of sums and assets (again, this will typically apply to money purchase benefit rights), and / or" I would appreciate your further feedback on the matter.

Hi jimbof,
You will need to provide written evidence for a definitve answer to be given.
This should be sent to:
HMRC, PAYE & Self Assessment BX9 1AS.
The evidence would need to show the actions that have been taken by the pension provider and the amounts.
Thank you.