Pensions expert offers tips to keep finances on track in 2022
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
Pension savers have been refunded a total of £800million in overpaid tax on pension withdrawals, according to analysis of statistics by Lane Clark Peacock (LCP). The latest figures demonstrate in the most recent quarter some 13,000 people had to reclaim overpaid tax – totalling £42million. The issue can occur frequently, and at present, there is little to no way to stop it occurring.
Pension freedoms rules introduced since 2015 mean people can withdraw money from their pot in small amounts or as a lump sum.
While this has created more flexibility for pension savers, there is also a vital tax issue to bear in mind when accessing a pot, especially for the first time.
Those who do so could find themselves at the behest of an emergency tax code, which could hit Britons with a whopping tax bill – albeit temporarily.
Consequently, thousands of people are due back thousands or even tens of thousands of pounds each year in overpaid tax.
The figures cited by LCP only include cases where individuals filled in one of three different claim forms to actively claim their overpaid tax back.
Other overpayments will be picked up by the annual tax return process, for instance, where a person did not reclaim the overpaid tax at the time.
According to the firm, this could mean the total amount of overpaid tax is likely to be in excess of £1 billion since Pension Freedoms started in 2015.
Sir Steve Webb, former pensions minister and partner at Lane, Clark, Peacock, has urged action on the matter.
State pension will rise in April but triple lock freeze to impact sum [INSIGHT]
Man, 70, urges retirees to consider self-employment for extra cash [EXCLUSIVE]
State pension warning as triple lock freeze to create ‘pinch point’ [ANALYSIS]
He said: “It is a disgrace that ordinary savers who want to access their pension savings flexibly are routinely overtaxed and then forced to claim back this excess tax.
“HMRC’s approach is to tax first and ask questions later.
“This ‘money merry-go-round’ where people have large amounts of tax deducted and then have to claim back some of it has gone on long enough.
“The system is run purely for the administrative convenience of HMRC rather than the benefit of taxpayers.
“It would be much fairer simply to deduct basic rate tax from pension withdrawals and then adjust the amounts paid if this did not give the right answer, rather than overtaxing thousands of people every month.”
Jon Greer, head of retirement policy at Quilter, has described the system as “clunky”.
He added: “It’s a little known quirk of the PAYE system that often results in considerable tax overpayments.
“This highlights the importance of getting financial advice before touching your pension. HMRC will make a repayment automatically, but this could take some time so if you want a refund to come through more quickly, then make a repayment claim yourself to avoid waiting for HMRC.
What is happening where you live? Find out by adding your postcode or visit InYourArea
“Working with someone who knows and understands the system and can plan your financial affairs thoroughly with you will reduce the risk of lost income being handed to the tax authorities, or if it is taken then helping you reclaim it speedily and effectively.”
HMRC will help people to claim the tax back willingly, and there is a portal available through the Government’s website.
An HMRC spokesperson told Express.co.uk: “Nobody will overpay tax as a result of taking advantage of pension flexibility. Individuals can claim back any overpayment due to an emergency tax code being applied immediately and we will repay this in 30 days.
“Anyone who does not claim will be automatically repaid at the end of the year.”
Source: Read Full Article