Pension savers overtaxed by £535m since 2015

Pension savers who were overtaxed on Pension Freedom withdrawals have been repaid £535mm by HMRC since 2015. Some providers, such as Royal London, have called on changes to the rules which can impose 'emergency tax' on some pension withdrawals, with tax overpayment repaid at a later date.A record £54m was repaid to savers who were overtaxed on pension freedoms withdrawals in the three months to September 2019.The average reclaim per investor breached £3,000 for the first time in the latest quarter.Savers who are overtaxed risk being pushed into “serious financial difficulty” according to AJ Bell senior analyst Tom Selby. Mr Selby said: “HMRC processed a record £54m of reclaims for overpaid pension tax in the latest quarter, pushing the total paid back to people who filled out the official forms well past £500 million.“Given most people don’t fill out these forms, this is almost certainly the tip of a sizeable iceberg.“It is time for the Government to accept that, while the retirement flexibilities introduced in April 2015 have been well received by savers, the tax system that sits alongside them is simply not fit for purpose.“People risk being left short of money as a result of HMRC’s approach and forced to either take out more cash from their pension, potentially paying extra tax in the process, or seeking the funds from elsewhere.“This is a particular problem if someone has earmarked the withdrawal for something specific, such as helping their child buy a house or paying for long-term care for an elderly relative.“Savers struggling to make ends meet as a result of being overtaxed could even be forced into the arms of a high cost lender.“At the absolute bare minimum the Government needs to urgently review its approach to the taxation of pension freedoms withdrawals, which has never been consulted on formally.“Its failure to do this so far represents a serious failure of policymaking which will inevitably have caused people distress and potentially significant financial hardship.”Steve Webb, director of policy at Royal London, said: “Even by their own low standards, HMRC have outdone themselves in the last three months, taking more than £54m of savers’ money in income tax to which they were not entitled. “It cannot be right that tens of thousands of people each year have too much tax taken out of their pension and then have the hassle of filling in a form to get back money that is rightfully theirs. “Whoever ends up running the country after the General Election needs to tell HMRC to stop this practice as a matter of urgency.”

Pension savers overtaxed by £535m since 2015

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