Since the freedoms were introduced in April 2015, HMRC has received 174,000 claims and had to repay £402m ($526.3m, €460m).
In the last quarter of 2018 alone, over £30m was repaid to 13,000 people.
For Helen Morrissey, pensions specialist at Royal London, it shows that “HMRC is utterly shameless in the way it over-taxes people and then expects them to claim a refund”.
“The system should be run for the convenience of taxpayers, not the convenience of HMRC. It is time that this over-taxing spree was brought to an end.”
Falls to the taxpayer
What makes the situation more galling, is that it is then incumbent on the taxpayers to claim the money back, which means that the over-taxed sum could be even higher.
Tom Selby, senior analyst at AJ Bell, said that the taxman’s “insistence on applying emergency tax to hard-working savers’ first pension freedoms withdrawals continues to harm those who access their own money flexibly”.
“What these figures don’t capture is those who don’t fill out the forms. Given 150,000 pensions per quarter that have been accessed for the first time, it appears far more people either don’t know they have been penalised or are unsure how to go about getting the money back.”
Selby called on policymakers to work with industry to find a better solution.
Making a claim
The current process, as stated above, is for taxpayers to complete one of three forms to claim back their money.
The most commonly-used form was the P55, which was processed by HMRC 7,770 times between 1 October and 31 December 2018.
It allows tax to be claimed back if the individual has:
- flexibly accessed their pension;
- only taken part of it and will not be taking regular payments; or,
- the pension body is unable to make a tax refund.
The P53Z form is used by individuals in receipt of serious ill health lump sums or where a pension flexibility payment has emptied the pot.
HMRC processed 4,537 of these forms during the fourth quarter of last year.
The final form, P50Z, is submitted when the taxpayer has:
- made a pension flexibility payment that used up the entire pension pot and received a P45 form from the previous employer who offered the scheme;
- been unemployed for four weeks or more;
- not claimed taxable benefits, such as jobseeker’s allowance and incapacity benefit;
- no expectations of going back to work;
- retired permanently but is not getting a pension from their old employer; or,
- returned to full-time study.
The UK taxman received 1,685 of these forms during Q4 2018.