HMRC repays £44m in pensions tax in Q3

HMRC repaid £44.3m to savers who paid too much tax when first accessing their pension between 1 July and 30 September. Over the three months there were over 12,000 repayment claims processed, totally £44.295,438. This represents £3,691 per claim. Whilst this is a slight decrease from the previous quarter, it shows that savers are continuing to take large withdrawals from their pension pots. The PAYE system struggles to accommodate the way pensions are accessed under the freedoms introduced in 2015. As a result emergency tax codes are often applied to withdrawals, leading to significant overpayments. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the government needs to urgently resolve the issue. She said: “You can get the extra money refunded but this is not the point. Many of these people will not have been expecting this and the extra tax bill will have come as a nasty shock. It may even have undermined plans that people had for the money in the short term, and it takes time to sort out. It’s an extra complexity that no-one needs and should have been resolved many years ago.” The latest Pension Flexibility data from HMRC says that around £1.3bn has been refunded to savers over the past nine years. Jon Greer, head of retirement policy at Quilter, said that this month’s Budget could see a big rise in the tax overpaid in the current quarter. He said: “Despite a gradual easing in cost-of-living pressures, these figures suggest that many are still drawing from their pension savings to navigate financial challenges. However, what’s particularly concerning is that we may see a sharp rise in withdrawals in the next set of data, driven by growing anxieties surrounding the upcoming budget. “With persistent rumours and the government’s rhetoric pointing to a ‘painful’ fiscal event, many savers may take unplanned action to take tax-free cash from their pension pots, fearing potential changes to pension taxation. This could lead to hasty decisions, which may not be in their long-term financial interests. Clearly this is not intentional policy by the government but might come to be an unfortunate by-product nevertheless.” Pension savers can reclaim the overpaid tax by filling in one of three forms for HMRC, with refunds paid directly into their bank account. Alternatively they can wait until the end of the tax year for a refund.

HMRC repays £44m in pensions tax in Q3

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