Pensioners warned they’ve been overtaxed by £1BILLION - how to claim money back
Published: 27/04/2023- 15:41
Pensioners in Britain have been warned that they could have paid £1.01billion more in tax on their pensions than they should have, according to the latest figures.
Since pension flexibility reforms were introduced in 2015, savers who make an early withdrawal from a ‘defined contribution’ pension pot are taxed extra by HMRC.
In this case, HMRC would issue an emergency tax rate that presumes the person will withdraw that amount from their pension pot every month.
For example, if someone takes out £10,000 from their pension pot one month, HMRC would tax them as if they were taking out £120,000 that year.
HMRC have received 15,800 tax refund claimsPexels
To retrieve this cash from the taxman, pensioners either have to lodge a claim directly with HMRC or wait for HMRC to review self-assessment payments and issue a refund.
In the first three months of this year, 15,800 people have taken matters into their own hands by sending in tax refund claims, leading to a payout of £48.5million.
HMRC does not publish the number of those who have received a refund after internal reviews, which means the £1billion might well be higher.
Sir Steve Webb, a former pensions minister and now partner at LCP, described the system as a "disgrace" and said reform was "long overdue".
He added: "A system based on systematic over-taxing 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.
"We are not talking about small sums, with over £1billion being paid back by HMRC so far.
"Reform of the system is long overdue so that it works to the benefit of pension savers and not the Treasury.”
Sir Steve Webb previously speaking to GB News about state pensionsGB News
Webb previously warned GB News viewers of agonising wait as key state pension decision was "punted into the long grass".
It is important to note that people might not be permanently out of pocket, but it can take several months before the emergency tax is corrected.
An HMRC spokesperson said: "Nobody overpays tax as a result of taking advantage of pension flexibility.
"We will automatically repay anyone who pays too much because they’re on an emergency tax code.
“Individuals can claim back any overpayment earlier if they wish."