There must be a complete overhaul of the “absurd” pension tax overpay system, according to former pensions minister turned Royal London director of policy Steve Webb.
New HM Revenue & Customs (HMRC) figures show that tax overpayments since the pension freedoms came into force have now passed the £280m mark.
In the first quarter of 2018, more than £22m had to be repaid by the Revenue where it had collected too much tax from those flexibly accessing their pensions.
This takes the running total since the start of the new system in April 2015 to around £285m. According to Webb, in most cases, withdrawals are taxed using an “emergency” tax code that routinely results in an excessive tax deduction, which then has to be reclaimed.
In total, more than 10,000 people have had to claim back overpaid tax in first quarter of the calendar year.
“These quarterly figures are a regular reminder of the absurd way in which pension withdrawals are taxed,” said Web pictured). “HMRC is perfectly happy to over-tax tens of thousands of people each year and make them jump through hoops – having to choose between three different forms to complete and then wait to get their money back.
“This is a system run for the convenience of HMRC, not the taxpayer. It is time to move to a simple system where basic rate tax is withdrawn at source and any adjustment is made through end-of-year tax returns.”