Over £38m ($48.6m €42.9m) has been repaid to individuals due to over-taxation when accessing their pension pots, according to the latest figures from HM Revenue & Customs for the third quarter of 2018 (1 July – 30 September).
The UK tax collector received over 18,000 tax repayment claim forms between P55s (general repayment claims), P53Zs (for individuals in serious ill health) and P50Zs (for people who have stopped working).
The latest figures bring the total repaid from over taxation since the introduction of the pension freedoms in 2015 to £372m with more than 160,000 claims made.
The UK government announced pension freedoms in its 2014 budget, allowing anyone aged 55 or over to take the whole of their pensions as a lump sum without paying tax on the first 25%.
"Policymakers need to seriously consider whether the current approach is the right one."
Ian Browne, pensions expert at Quilter, said: “This is the largest amount repaid for any quarter since freedoms were introduced and these staggering figures continue to make a mockery of pension freedoms as it shows HMRC are simply unable to cope with the new measures even though they have been in place for over three years. And remember, these figures only acknowledge those who have filled out official tax reclaim forms.
“It is astonishing that HMRC have failed to address the problem and are still forcing people to fill out time consuming paper work to simply get their money back. This antiquated system is begging to be modernised to account for this new retirement landscape.”
Other pension experts have expressed frustration in a system that “does not work” and have asked the government to take the issue seriously.
“According to the FCA, around 150,000* pension pots have been accessed for the first time each quarter since the pension freedoms were introduced” said Tom Selby, senior analyst at AJ Bell. “Most of these withdrawals are likely to have been overtaxed.
“For those who access their pension for specific purposes such as paying down debt or funding care for an elderly relative, receiving potentially thousands of pounds less than they expected could present a very real financial challenge.
“We do not pretend this is an easy problem with easy solutions, but the Government cannot simply ignore the issue either. Policymakers need to seriously consider whether the current approach is the right one and engage with the industry to consider alternatives that don’t unfairly punish savers who access their retirement fund.”
Source: HMRC Statistics