Savers continue to be over-taxed on pension withdrawals, with the latest HMRC statistics showing a record £38m was reclaimed in Q3 2018, amid call for the government to review the ‘emergency tax’ treatment of pension freedoms withdrawals
The figures show HMRC processed 18,353 reclaim forms between 1 July and 30 September this year, with an average repayment of over £2,000.
In total, £372.5m has now been reclaimed by pension savers since the pension freedoms were launched in April 2015.
Tom Selby, senior analyst at AJ Bell, said: ‘While it is good news HMRC is processing record numbers of claims, it also demonstrates that this problem is not going away.
‘In reality the vast majority of people who are overtaxed are not filling out the official reclaim forms, meaning the amount of emergency tax paid by savers will be much higher than this official figure.
‘According to the Financial Conduct Authority, around 150,000 pension pots have been accessed for the first time each quarter since the pension freedoms were introduced. Most of these withdrawals are likely to have been overtaxed.’
Selby pointed out that for taxpayers who access their pension for specific purposes such as paying down debt or funding care for an elderly relative, receiving potentially thousands of pounds less than they expected could present a very real financial challenge.
‘We do not pretend this is an easy problem with easy solutions, but the government cannot simply ignore the issue either.
‘Policymakers need to seriously consider whether the current approach is the right one and engage with the industry to consider alternatives that do not unfairly punish savers who access their retirement fund,’ he said.
There is a similar response to HMRC’s data from Royal London Insurance, which says the amount of over-paid tax on pension withdrawals has surged in the last three months, from £28m in the previous quarter, bring the total amount reclaimed in the past four quarters alone past the £100 million mark.
Steve Webb, director of policy at Royal London said: ‘HMRC must be rubbing their hands with glee as taxpayers are forced to fork out millions of pounds in unnecessary tax on pension withdrawals, all for the administrative convenient of the government.
‘The scale of over-taxation seems to be increasing, with £38m having to be paid back in the latest quarter. There must be a better way than the current system where taxpayers have to fill in one of three forms to claim back the tax that they should never have had to pay in the first place.’
HMRC Pension schemes newsletter 104 for October 2018 is here
Report by Pat Sweet
