HMRC’s pension flexibility statistics reveals £44m was refunded to people over-taxed when accessing their pension.
As part of its latest pension schemes newsletter, HMRC has revealed that between July 1 and September 30 2021 HMRC refunded £44,659,174.
The overcharge was due to people taking lump sums from their pensions and initially getting taxed as if they will take the same sum every month for the rest of the tax year. Those affected must fill out one of three forms in order to claim their refund, or they will have to wait until the end of the tax year for a rebate.
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey says: “People drawing money from their pensions have been overcharged an eye-watering £44m. And this isn’t some kind of horrible mistake by the taxman, it’s how the system is intended to work.
“Today’s figures show HMRC has paid out yet another whopping sum to people who were over-taxed when accessing their pensions. The problem is that people pay tax on lump sums as if they were going to keep drawing them for the rest of the tax year. They then either need to apply for a refund or wait to the end of the tax year.
“Given the ongoing popularity of the freedom and choice reforms it’s an administrative nightmare that should have been sorted long ago. Instead people must navigate a complex system filling out various forms to get their hands on their money.
“This is a system ripe for reform and given the government recently confirmed its intention to invest in improving how pension tax reliefs are administered we must hope they will also look to bring this system out of the dark ages.”
