New figures issued today by HMRC show that the amount of overpaid income tax reclaimed by pension savers reached a record level in the latest quarter.
In the three months to 30th September 2019, HMRC had to hand back over £54 million in tax on pension withdrawals, the highest quarterly figure since pension freedoms were introduced in 2015. Over the whole period, the total amount taken in ‘emergency tax’ on pension withdrawals and subsequently repaid has now passed the half billion pound mark and stands at £535m.
Under current tax rules, when an individual withdraws money from their pension, HMRC makes assumptions about how many more times they will make withdrawals over the rest of the financial year. By assuming that the individual will make lots of withdrawals, HMRC assumes that people will often go into the 40% tax band and therefore takes a large chunk of tax from the withdrawal. This will often be a false assumption, but individuals then have to fill in one of three different forms to get their money back, or wait until the end year tax return process. The Government’s own Office for Tax Simplification has called on HMRC to review this process of applying ‘emergency’ tax codes to pension withdrawals, but HMRC has refused to act.
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’.
Notes to Editors
Quarterly figures on withdrawals are contained in the Pension Schemes Newsletter. The latest edition was published 30th October and can be found here https://www.gov.uk/government/publications/pension-schemes-newsletter-114-october-2019/pension-schemes-newsletter-114-october-2019
Aggregate statistics since 2015 are based on successive editions of the newsletter and have been calculated by Royal London.
About Royal London:
Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.