HM Revenue & Customs (HMRC) has had to pay back thousands of retirees since the introduction of pension freedoms for overpaying tax when accessing their pots.
In the last three months of 2021, the taxman processed refunds to around 13,000 people for a total of more than £42m ($57m, €50m).
According to analysis by advisory firm LCP, this brings the total sum of refunds to approximately £835m since 2015.
But HMRC’s figures only include cases where retirees filled in one of three different claim forms required to be given back overpaid tax.
LCP said that other overpayments will be picked up by the annual tax return process, “which means that the total amount is likely to be in excess of £1bn”.
Steve Webb, partner at LCP, said: “It is a disgrace that ordinary savers who want to access their pension savings flexibly are routinely overtaxed and then forced to claim back this excess tax. HMRC’s approach is to tax first and ask questions later. This ‘money merry-go-round’ where people have large amounts of tax deducted and then have to claim back some of it has gone on long enough.
“The system is run purely for the administrative convenience of HMRC rather than the benefit of taxpayers. It would be much fairer simply to deduct basic rate tax from pension withdrawals and then adjust the amounts paid if this did not give the right answer, rather than overtaxing thousands of people every month.”
