Pension savers pay £400m in excess tax
When individuals make lump sum withdrawals from their pension fund after the age of 55, it is routinely taxed on the basis of an emergency tax code, which assumes that the payment will be regular rather than a one-off.
This can result in significant overpayments, which then have to be recovered by individual taxpayers by filling in one of three different claim forms depending on their circumstances.
HMRC’s own data shows that it has had to repay tax on 174,000 occasions to the tune of £402m. In the last three months of 2018, over £30m was repaid to over 13,000 people. The average reclaim Average reclaim since April 2015 sits at £2,312.
Helen Morrissey, pensions specialist at Royal London said: “HMRC is utterly shameless in the way it over-taxes people and then expects them to claim a refund. The system should be run for the convenience of taxpayers, not the convenience of HMRC. It is time that this over-taxing spree was brought to an end’.
Tom Selby, senior analyst at AJ Bell, pointed out that the figures don’t include those who fail to fill out one of the three official reclaim forms (P55, P53Z or P50Z). He added: “HMRC’s insistence on applying emergency tax to hard-working savers’ first pension freedoms withdrawals continues to harm those who access their own money flexibly.
“What these figures don’t capture is those who don’t fill out the forms. Given 150,000* pensions per quarter have been accessed for the first time, it appears far more people either don’t know they have been penalised or are unsure how to go about getting the money back.
“This is hardly surprising given many savers who use the pension freedoms will have never filled out a tax return before.
“This has been going on for almost four years now and the Revenue still steadfastly refuses to properly review its approach. We urge policymakers to think again and work with the industry to find a better solution.”