3 November 2022
If you are covering Q3 2022 HMRC tax overpayment statistics on flexible pension withdrawals, please see the following comment from Jon Greer, head of retirement policy at Quilter:
“New figures from HMRC show pension tax overpayment reclaims remained steadily high in the third quarter of 2022 at £33.1m, a minor dip on Q2’s £33.7 but still 50% higher than Q1 2022. The number of claims forms processed also remained very high, highlighting a sustained need for people to access their pension funds as the cost-of-living crisis takes a firmer grip on their everyday finances. Despite so many people needing quick access to their funds, this clunky system results in a drawn-out process that means people have to wait far longer than they may have anticipated to receive the full amount they expected.
“The cost-of-living crisis is now putting a real strain on people’s finances, and the number of people needing to access their pension savings to help them get by will likely continue to rise in the coming months. In the past year alone – Q4 2021 to Q3 2022 - pension tax overpayment reclaims totalled £131.3m, a considerable increase compared to the £126.6m the year prior as more people have been forced to dip into their pension pots. What’s more, the trend in these figures only shows withdrawals including a taxable element, and therefore will not capture those that took their tax free cash alone.
“The Q3 figures amount to an average tax reclaim of £3,324 per saver (9956 forms) as a result of the incorrect amount of tax being charged from pension income. This is 10% higher than in Q1, which shows people are needing to take increasingly larger payments. Year to date, almost 41,000 reclaim forms have been submitted, up from just under 38,500 the year prior.
“Given the current economic circumstances, this emergency tax situation will be particularly frustrating for people trying to access their funds quickly to ensure they can pay for rising energy bills and other everyday costs – particularly if they don’t understand why it has happened. The cost-of-living crisis will no doubt result in an increase in withdrawals, and a subsequent increase in the number of people left disappointed that they have to make a reclaim at a time when they may urgently need the money.
“The issue arises due to a quirk in the PAYE system when people start to take money from their pension. HMRC will make a repayment automatically, but given the lengthy time it can take to be processed it is a good idea to make a repayment claim as soon as possible to avoid waiting.
“Where possible, seeking professional financial advice can help reduce the risk of more tax being handed to the taxman upfront. For example, it is possible to make multiple smaller pension withdrawals, rather than one lump sum, to ensure the majority of the withdrawal uses an up to date tax coding, which means you won't be emergency taxed on the full amount.”
