Since the introduction of pension freedoms in 2015, the government has overcharged people withdrawing money from their pensions by more than £1bn in income tax.
When people first take money out of their defined contribution pension, they are often charged at an “emergency” tax rate and must claim back the overpaid tax by filling in one of three forms. In its pensions- schemes newsletters, HMRC reports on the number of people who have had to claim money back in this way and the amount that has been paid back every quarter. The latest report reveals that 15,856 people successfully claimed back a total of £48.5m during the past three months.
LCP has added up all the quarterly figures since 2015 to reveal that £1.018bn has been paid back in total. It also argues that this amount is likely to be far higher when counting savers who did not fill in a form but received a refund after filing their tax returns – a group not included in the newsletters.
“This is an absolute disgrace,” said LCP partner Steve Webb. “A system based on systematic overtaxing of pension savers cannot be right.
“There is no good reason why citizens who access their pension should have to go through the hassle of claiming back excess taxation, which they should never have had to pay in the first place.
“Reform of the system is long overdue so that it works to the benefit of pension savers and not the Treasury.”
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