24 October 2024
If you are covering Q3 2024 HMRC tax overpayment statistics on flexible pension withdrawals, please see the following comment from Jon Greer, head of retirement policy at Quilter:
“Today’s figures from HMRC show that pension tax overpayment refunds continue to be a substantial issue, with over 12,000 repayment claims processed between July and September 2024, totalling £44,295,438, which is £3,691 per person. While this quarter has seen a slight decrease in overpayments compared to the last, it underscores the ongoing complexity and inefficiencies in the system when it comes to flexible pension withdrawals.
“Despite a gradual easing in cost-of-living pressures, these figures suggest that many are still drawing from their pension savings to navigate financial challenges. However, what’s particularly concerning is that we may see a sharp rise in withdrawals in the next set of data, driven by growing anxieties surrounding the upcoming budget. With persistent rumours and the government’s rhetoric pointing to a ‘painful’ fiscal event, many savers may take unplanned action to take tax-free cash from their pension pots, fearing potential changes to pension taxation. This could lead to hasty decisions, which may not be in their long-term financial interests. Clearly this is not intentional policy by the government but might come to be an unfortunate by-product nevertheless.
“The tax system's inherent flaws place a heavy burden on retirees. The PAYE system, while effective for regular income, struggles to accommodate the way pensions are accessed under the freedoms introduced in 2015. As a result, emergency tax codes are often applied to withdrawals, leading to significant overpayments and unnecessary delays in reclaiming funds. With an average refund still substantial, the need for reform is clear.
“It is vital that those considering pension withdrawals amid these budget rumours seek professional financial advice. A rush to take money out could result in unnecessary tax liabilities, and careful planning is essential to avoid making decisions that might compromise their retirement plans. Advisers can help structure withdrawals effectively, ensuring savers do not fall foul of the tax system’s pitfalls.
“Until the system is changed, we are likely to continue seeing many savers caught out and forced to reclaim significant sums of money.”
