Pension savers recoup more than £22m in tax

As ‘clunky’ and ‘complex’ system blamed for overpayments

|

HM Revenue & Customs (HMRC) has handed back more than £22.3m ($29.4m, €26.7m) in tax charged from pension income in the first three months of 2022, its latest figures show.

This is on par with the £23m in Q1 2021. Total overpayments for last year stood at £142m.

Usually, HMRC will make repayments automatically, but they may take a while to be processed, so savers are encouraged to file repayment claims.

This can be done via three different forms: P55, P53Z and P50Z.

According to the latest quarterly figures, HMRC processed:

  • 4,693 P55 forms
  • 1,903 P53Z forms
  • 816 P50Z forms

This means that, on average, taxpayers have been given back around £3,011 each in the first quarter of the year.

‘Clunky’ and ‘complex’

Jon Greer, head of retirement policy at Quilter, said: “Due to clunky systems, HMRC repaid pension savers over £22m in the first quarter of 2022. This comes on top of more than £142m of overpayments last year.

“This emergency tax is due to a little understood quirk of the pay-as-you-earn (Paye) system when people start to take money from their pension. Year-on-year overpayments have remained broadly the same with £23m repaid to pensioners in Q1 2021, which increased considerably throughout the year as more pension savers dipped into their pension.

“While HMRC will make a repayment automatically, it could take some time, so it is best to make a repayment claim yourself to avoid waiting. Working alongside a professional who knows and understands the system will reduce the risk of lost income being handed to the tax authorities or, if it is taken, then helping you reclaim it speedily and effectively.”

Andrew Tully, technical director, Canada Life added: “The latest HMRC numbers just re-emphasise how complex the tax position around pension withdrawals is.

“Seven years on from the introduction of the pension freedoms there must be a better way to administer the tax position around pension withdrawals which would mean HMRC is not processing refunds of over £22m in just a three-month period.

“But perhaps HMRC has adopted the view that it is better to tax first and ask questions after.

“For customers making a pension withdrawal for the first time, a workaround is to initiate a small withdrawal of say £100. That will generate a tax code from HMRC which the pension provider will apply to any subsequent withdrawals. That will result in the tax being taken at source being far more accurate in many more cases, reducing the paperwork but equally importantly the customer receiving a more accurate withdrawal.”

Latest Stories