Pensions

Pension news: HMRC overcharges £26m tax to savers using freedoms to access pots | Personal Finance | Finance

Thousands of people were caught out by emergency tax codes slapped on withdrawals in the three months to June 2017, official figures showed.

Former pension minister Steve Webb described the flawed system is “outrageous”.

Most people accessing their pensions for the first time usually withdraw just a one-off amount.

But HMRC charges tax based on assumption the saver will withdraw the same amount every month.

It means that someone taking a lump sum of £10,000 from their pension will be charged tax at a rate of £120,000 a year – even though this is highly unlikely to be the case.

Mr Webb, now director of policy at Royal London, said: “It is outrageous that in just three months HMRC has over-taxed people by more than £26 million.

“It cannot be acceptable to take thousands of pounds per person in excess taxes and then expect people to have to claim that money back.

“The rules need to be changed so that only basic rate tax is deducted and any extra tax due is collected through the normal tax return process.

“This would be a far fairer system.”

Pensioners can now demand their money back.

Recent calculations by provider AJ Bell estimates hundreds of thousands of people could be owed a tax refund worth £3,099 on an average withdrawal of £10,000.

Savers have been urged to check if they overpaid and turn to HMRC for a refund if the pension pot was used up, or their pension provider if there is still money left.

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