HMRC repays £32m in overpaid pension tax

Savers who withdrew money from their pensions in Q4 2019 were repaid more than £32m in emergency pension tax by HMRC.

Between 1 October and 31 December, HMRC processed more than 10,000 pension tax repayment claim forms for pension flexibility payments during this period.

Some savers were charged an emergency tax on their withdrawals, resulting in HMRC repaying a total of £32.2m to those affected.

Quilter head of retirement policy, Jon Greer, said that the record payout total was due to issues with the PAYE system.

He commented: “Pension savers have been forced to claim back over £3,000 per person, and a record £32.2m for the final quarter of 2019.

“The problem has nothing to do with anything pensioners have done wrong and lies solely with the PAYE system. HMRC’s PAYE system is not built for one-off withdrawals from a pension and so does not fit with the new world of pension freedoms. “

When savers withdraw money form their pension above the 25 per cent tax free amount, they are taxed according to their tax code.

However, if their provider does not have the correct tax code for the pension withdrawer, then HMRC will tax using an emergency tax code, which is often higher than the correct code.

Greer continued: “People who make such withdrawals from their pensions, as is their right, may overpay tax and then wait 12 months or more to get the money back when HMRC automatically reviews tax liability.

“If you have been charged then you can fill in one of three forms: P55, P53Z and P50Z. These were created so people could claim back mid tax-year and not have to wait to receive money that is rightfully theirs.

“The onus is very much on the government to ensure it is doing all it can to give pensioners their hard-earned money back. An over £3,000 hit on your pension can be substantially detrimental to your lifestyle in retirement.”

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