The number of people overtaxed on flexible pension withdrawals continues to soar, with latest HMRC figures showing rebates for the second quarter of this year were £8m higher than in the first three months of 2023.
In total, HMRC repaid £56,243,842 from April to June this year. This is a record amount repaid on any one quarter, and almost twice the £33.7m repaid in the same three months of 2022. The average rebate per person was £3,551.
This increase comes as more people have been forced to access pension savings, due to the worsening cost-of-living squeeze.
Problems arise as these flexible withdrawals are often subject to an emergency tax code, with HMRC computers calculating the tax as though this will be a regular income drawn each month over the year, although in the many cases these are one-off lump sum withdrawals.
Individuals can apply to get this tax repaid, with those who do not getting rebates in the following year. There have been regular calls from the industry for HMRC to improve this situation since this issue emerged in the wake of the pension freedom rules, which led to far a higher numbers making flexible pension withdrawals.
Quilter head of retirement policy Jon Greer says: “New figures from HMRC show that pension tax overpayment refunds continue to skyrocket, with £56,243,842 repaid in the second quarter of 2023 alone.
“There has been a significant increase in the number of claim forms processed, illustrating just how many people are turning to their pension pots to help them get by as the cost-of-living crisis intensifies.
“However, despite it being a time when people need swift access to their money more than ever, those hoping to use their funds are faced with a system that causes prolonged waiting periods before they can receive the full amount.”
He adds: “This emergency tax situation can be particularly frustrating for people trying to access their funds quickly.”
He says those who need emergency access to their pension funds should speak to a professional financial planner ,who can help reduce the risk of paying excessive upfront taxes, for example by making multiple smaller pension withdrawals as opposed to taking a single lump sum.
This can ensure that most of the withdrawal utilises an updated tax code, preventing emergency taxation on the full amount.
Greer adds: “The system is in real need of an overhaul, as the current process is leaving an increasing number of people facing emergency tax at a time they need their money most.”