It has instructed pension providers to make do with the short service refund lump-sum section of the existing online accounting for tax return, where member contributions are to be refunded net of 40 per cent tax.
But the 40 per cent tax box does not become active unless an entry is made in the 20 per cent box in another part of the form. To get around this, HMRC advised AJ Bell to put £1 in the 20 per cent box to activate the 40 per cent box.
But in the pre-Budget report, the Government changed the short service refund lump-sum limits from 20 per cent for the first £10,800 and 40 per cent for the rest to 20 per cent for the first £20,000 and 50 per cent for the rest.
From April, the 40 per cent bracket will be removed, making the form redundant for anti-forestalling purposes.
Marketing director Billy MacKay says: “This will not be understood by savers. From our perspective, it feels a little like driving a square peg into a round hole.”
An HMRC spokeswoman confirmed that providers would have to use the existing accounting for tax form.