• Pension freedoms over-taxation debacle has now seen a total of £433 million reclaimed using official HMRC forms
• £31 million was reclaimed in Q1 2019 with an average value of almost £2,500 per claim
• These figures are likely the tip of the iceberg – official FCA stats suggest around 150,000 pensions are accessed for the first time each quarter and are at risk of being overtaxed
• By contrast, only 12,600 official reclaim forms were completed in the first three months of 2019
• Individual making a £10,000 withdrawal with no other taxable income could be hit with an unexpected bill of £2,958*
Tom Selby, senior analyst at AJ Bell, comments:
“It is now over four years since the pension freedoms were introduced and HMRC’s highly dubious tactic of hitting savers with an emergency tax charge on their first withdrawal still hasn’t been formally consulted on or reviewed.
“Regardless of whether you think this is the right approach or not, this failure to properly consider a policy which impacts hundreds of thousands of savers is nothing short of a disgrace.
“As is so often the case, the people most likely to be negatively impacted are the less wealthy who aren’t familiar with tax forms and can’t afford to pay for financial advice.
“While Brexit is understandably dominating political discourse at the moment, Government still has a duty to make well-evidenced policy and enact changes where citizens are penalised unfairly.
“Given the ever-growing number of people affected by HMRC’s approach it is now imperative a thorough review – including input from those on the frontline – is initiated to find a better way forward.”
*Under HMRC’s ‘Month 1’ taxation approach to pension freedoms withdrawals, the first withdrawal is treated as being the first of 12. The usual tax allowances are therefore divided by 12 and applied to the withdrawal.
So in this example, the personal allowance is reduced from £12,500 to £1,042, the basic-rate band from £37,500 to £3,125, and the higher-rate tax band from £100,000 to £8,333. When these are applied to a £10,000 withdrawal you reach a tax figure of £2,958.
