HMRC has today published the latest quarterly figures for the amount of money which it has had to repay to people who have been overtaxed when they accessed their pension pot under Pension Freedoms (see: Pension schemes newsletter 136 ― January 2022 – GOV.UK (www.gov.uk)).
The latest figures show that in the most recent quarter another 13,000 people had to reclaim overpaid tax totalling £42m. Accordingly to calculations by LCP, this takes the running total of tax repaid by HMRC since pension freedoms to around £835 million. These figures only include cases where individuals filled in one of three different claim forms to actively claim back overpaid tax. Other overpayments will be picked up by the annual tax return process (ie where people did not reclaim the overpaid tax at the time) which means that the total amount of overpaid tax is likely to be in excess of £1 billion since Pension Freedoms started in 2015.
Now LCP partner and former Pensions Minister Steve Webb is calling for this ‘money merry-go-round’ to stop and for HMRC to stop overtaxing people on pension withdrawals.
Steve Webb said:
“It is a disgrace that ordinary savers who want to access their pension savings flexibly are routinely overtaxed and then forced to claim back this excess tax. HMRC’s approach is to tax first and ask questions later. This ‘money merry-go-round’ where people have large amounts of tax deducted and then have to claim back some of it has gone on long enough. The system is run purely for the administrative convenience of HMRC rather than the benefit of taxpayers. It would be much fairer simply to deduct basic rate tax from pension withdrawals and then adjust the amounts paid if this did not give the right answer, rather than overtaxing thousands of people every month”.