Royal London director of policy Steve Webb has called for an end to what he called the “absurd” way pension withdrawals are taxed.
The former Pensions Minister highlighted new HMRC figures, which revealed tax over-payments since the start of pension freedoms had now reached more than £280m, as evidence of a need for reform.  

The latest ‘Pension Schemes Newsletter’, published this week, showed that in the first quarter of this year more than £22m had to be repaid, where too much tax had been collected by HMRC, from those making flexible withdrawals from their pension savings.  

This took the running total, since the start of the new system in April 2015, to around £285m.  

In most cases withdrawals were taxed using an ‘emergency’ tax code which routinely results in an excessive tax deduction which then has to be reclaimed.

Royal London says the latest figures were also a reminder of the complexity of the process, with no fewer than three different forms to choose from in order to claim back the tax.  

Mr Webb said: “These quarterly figures are a regular reminder of the absurd way in which pension withdrawals are taxed. 


“HMRC is perfectly happy to over-tax tens of thousands of people each year and make them jump through hoops, having to choose between three different forms to complete and then wait to get their money back.  

“This is a system run for the convenience of HMRC, not the taxpayer.”  

He added: “It is time to move to a simple system where basic rate tax is withdrawn at source and any adjustment is made through end year tax returns.”