HMRC paid back £38mn to savers who had made flexible withdrawals from their pensions in the last three months of 2023.
The latest figures show more than 12,000 reclaim forms were processed during the quarter with an average reclaim of £3,216.
Since the introduction of pensions freedoms in 2015, almost £1.2bn has been reclaimed by people who were overtaxed on pension withdrawals.
Tom Selby, director of public policy at AJ Bell, said while the freedom reforms were welcomed by savers, the government’s tax systems need to catch up.
He said: “While those reforms have been widely welcomed by savers, who now have total flexibility over how they access their retirement pot from age 55, the government’s own tax systems remain stuck in the dark ages.”
Selby added the tax overpayment figure is likely to be higher than published as many, particularly those on lower incomes unfamiliar with the self-assessment process, could be less likely to reclaim the cash.
“It is simply unacceptable that the government has failed to adapt the tax system to cope with the fact Brits are able to access their pensions flexibly from age 55, instead persisting with an arcane approach which hits people with an unfair tax bill, often running into thousands of pounds, and requires them to fill in one of three forms if they want to get their money back within 30 days,” said Selby.
Since the new rules were introduced, HMRC taxes the first flexible withdrawal someone takes in a year, marking it as month one.
Source: AJ Bell
After this, HMRC divides the usual tax allowance by 12 and applies it to the withdrawal, resulting in unexpected tax bills.
HMRC was contacted for comment.
tara.o'connor@ft.com
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