Many individuals accessing their pensions, which since April 2015 they have been able to do from age 55, are paying too much tax on their withdrawals.
Over £38million was reclaimed by savers overtaxed on their pension freedoms withdrawals in Q3 2018, the highest figure on record according to investment platform AJ Bell (see ‘2. Pension flexibility statistics’: https://www.gov.uk/government/publications/pension-schemes-newsletter-104-for-october-2018/pension-schemes-newsletter-104-for-october-2018)
18,353 official reclaim forms were processed by HMRC between 1st July and 30th September this year, with an average repayment of over £2,000
Since pension freedoms were introduced £372.5million has been reclaimed. Under pension freedoms a pension policy holder can withdraw all their pension as a lump sum with the first 25% tax free but with the rest charged at their income tax rate.
Tom Selby, senior analyst at AJ Bell, said: “A staggering £372million has now been reclaimed by savers overtaxed on their withdrawals since the pension freedoms launched. 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 aren’t 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 (FCA), 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.
“For those 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 don’t unfairly punish savers who access their retirement fund.”
To make a tax re-claim visit https://www.gov.uk/claim-tax-refund/you-get-a-pension.