The government has been urged to tax all pension withdrawals at the standard rate of income so people are not emergency taxed.

HM Revenue and Customs has paid back around £282m in tax rebates to people who have withdrawn money from their pension pots since the introduction of the pension freedoms in April 2015.

Figures for Q4 2017 published by HMRC today, 31 January, show that £20.5m was paid back during the period. Prior to that figures for the period between 1 July and 30 September, show that it paid back £37m.

Royal London director of policy Steve Webb believes the figures shows the department is “out of control”, with people using the pension freedoms taxed on an ‘emergency tax’ basis. Those that have been overtaxed have to fill in one of three different forms to claim their money back.

As a result, Webb believes one-off pension withdrawals are taxed at the standard rate of income tax, with any outstanding balance collected by end year adjustments.

Webb said: “HMRC is clearly out of control. It operates a system of ‘tax first, ask questions later’, presumably so that the government can enjoy some extra interest until the money is claimed back.

“It is time to speak up for ordinary citizens who are forced to pay excessive amounts of tax and then go through the hassle of claiming it back. This is a system built around the needs of the Treasury and the bureaucracy, not one which puts people first”.

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