Between July and September of this year HMRC refunded £44,659,174 to people who were over-taxed when accessing their pension, according to new figures released today.
People accessing lump sums from their pensions will initially be taxed as if they will take the same sum every month for the rest of the tax year., so those taking a one-off lump sum are likely to pay far too much tax on it.
Today HMRC released Pension Flexibility statistics as part of its latest Pension Schemes Newsletter.
Commenting on the figures, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “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,” she continued.
“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,” Morrissey said.
“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,” she concluded.