26 April 2023
If you are covering Q1 2023 HMRC tax overpayment statistics on flexible pension withdrawals, please see the following comment from Jon Greer, head of retirement policy at Quilter:
"Fresh data from HMRC shows that pension tax overpayment refunds continue to be sky high as we move through the first quarter of 2023 reaching £48,550,827.
"This is more than double the £22 million repaid in Q1 last year. This huge increase in the number of claim forms processed demonstrates the continued necessity for people to access their pension funds amidst the intensifying cost-of-living crisis impacting day-to-day financial situations. Unfortunately, this system leads to prolonged waiting periods for people to receive their full expected amount at a time when they need it more than ever.
"The ongoing cost-of-living crisis is exerting significant pressure on personal finances, and it is likely that more people will need to access their pension savings in the coming months to make ends meet.
"For Q1, the average tax refund per saver was £3,062. This problem stems from a peculiarity in the PAYE system when individuals begin withdrawing money from their pension as they are not taxed using the correct tax code. It’s also worth bearing in mind that these stats don’t show the number of people who don’t make an in year reclaim; thus waiting for an automatic repayment after the end of the tax year in question. The issue is therefore much bigger than reported in these statistics.
"For anyone looking to access their pension flexibly, it may be worth consulting a professional financial adviser who can help reduce the risk of paying excessive upfront taxes. For instance, by making multiple smaller pension withdrawals rather than a single lump sum. This can ensure that most of the withdrawal utilises an updated tax code, preventing emergency taxation on the full amount.
"This system clearly needs a rethink as these ever increasing figures do not point to a process that is working well."
