The UK’s total pension overtaxation bill has topped £1.2bn after record £198m was repaid to savers in 2023/24.
Savers reclaimed over £42m in overtaxation on pension withdrawals in January, February and March 2023, new HMRC figures showed.
Over 13,000 reclaim forms were processed during the quarter, with an average reclaim of £3,167.
The 2023/24 tax year saw over £198 million repaid to overtaxed pension savers – the highest on record, and over £1.2bn has now been reclaimed by people overtaxed on pension withdrawals since 2015.
Tom Selby, director of public policy at AJ Bell, said:“A decade on from former chancellor George Osborne’s bombshell pension freedoms announcement at the March 2014 Budget and the tax system which governs flexible retirement withdrawals remains faulty.
“The latest official figures reveal over £1.2 billion has now been repaid to savers who were overtaxed on their first withdrawal and filled out the relevant HMRC form to claim their money back. In the 2023/24 tax year alone, a record £198 million was repaid to people who had been clobbered with an unfair – and often unexpected – tax bill.
“Depressingly, the true overtaxation number will likely be substantially higher. In particular, people on lower incomes who are less familiar with the self-assessment process might be less likely to go through the official process of reclaiming the money they are owed. As a result, they will be reliant on HMRC putting their affairs in order.
“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.
“One way savers planning to take a single withdrawal in a tax year can potentially avoid the shock of a big overtaxation bill is by taking a notional withdrawal first. This should mean HMRC is able to apply the correct tax code to the second, larger withdrawal.
“Alternatively, you can fill out one of three HMRC forms and you should receive your tax back within 30 days. If you don’t do this, the Revenue says it will put you back in the correct tax position at the end of the tax year.”
