Figures published today by HMRC take the total amount of income tax overcharged by the Government on people withdrawing money from their pensions past the £1 billion mark since the introduction of pension freedoms in 2015.
Under current rules, when an individual first takes money out of their Defined Contribution pension they are often charged at an ‘emergency’ tax rate, with the duty then being on the saver to claim back overpaid tax by filling in one of three forms. Once a quarter HMRC report the number of people who have had to claim money back in this way and how much has been paid back.
In the latest ‘Pension Schemes Newsletter, HMRC say that the latest three months a further 15,856 people successfully claimed back a total of £48.5 million. But adding up all the quarterly figures since 2015 gives a total amount paid back to £1.018 billion.
In addition to money repaid by HMRC to those who fill in a claim form, there will be some savers who didn’t fill in a form and eventually get a tax refund when they fill in their tax return. HMRC does not publish figures for the numbers in this group but this does mean that the total amount of over taxation is likely to be significantly above the reported figure of £1 billion.
Commenting, Steve Webb, Partner at LCP said:
“This is an absolute disgrace. A system based on systematic over-taxing of pension savers cannot be right. There is no good reason why citizens who access their pension should have to go through the hassle of claiming back excess taxation which they should never have had to pay in the first place.
“And we are not talking about small sums, with over £1 billion being paid back by HMRC so far. Reform of the system is long overdue so that it works to the benefit of pension savers and not the Treasury”.