Over £42m was repaid in overpaid tax on flexible pension withdrawals in the first three months of this year bringing the total tax repayments for the previous tax year to over £198m, according to data from HMRC.
According to the most recent HMRC pensions update, which includes data on overpaid taxes recovered from flexible withdrawals, the total tax repayments for the previous tax year (2023-24) topped £198 million, setting a record for any single tax year. In total, HMRC has repaid more than £1.2 billion in overtaxes related to flexible pension withdrawals.
Canada Life pension, tax and estate planning specialist John Chew says: “Almost a decade on from the introduction of the pension freedoms and the latest HMRC update shows the tax system continues to catch people out.
“Although the overpaid tax on pension withdrawals can be reclaimed using one of the various forms available, the data shows record amounts of tax continues to be overpaid. There must be a better way of managing these withdrawals, especially if people are targeting a specific reason to use the money and find themselves short due to emergency tax being applied.
“While we wait for the tax system to catch up with the freedoms, a good tip for people who are making a pension withdrawal for the first time is to request a small withdrawal of say £100. That will generate a tax code from HMRC which the pension provider will apply to any subsequent withdrawals.
“That will result in the tax being taken at source being far more accurate in many more cases, not only reducing the burden of paperwork but equally importantly the customer receiving a more accurate withdrawal in the first place.
“It’s also worth noting that any change in tax position during the course of the year, resulting in a new tax code being issued by HMRC, should also be shared with your pension provider as a matter of course. This will help identify any differences in the tax being applied and allow for earlier intervention if required.”
