25 April 2024
If you are covering Q1 2024 HMRC tax overpayment statistics on flexible pension withdrawals, please see the following comment from Ian Cook, chartered financial planner at Quilter:
“New figures today from HMRC show pension tax overpayment refunds remain incredibly high, with £42,003,943 repaid in the first quarter of 2024. Though this is lower than Q1 2023, which may reflect that people were taking larger amounts from their pensions a year ago when the cost-of-living crisis was being felt more keenly, this is still a huge amount of money given it is as a result of the incorrect amount of tax being charged on pension income. In Q1 2024, the average tax refund per saver was £3,167.
"More than 13,000 claim forms were processed in Q1 2024, and those needing access to their funds are faced with an archaic system that over-taxes them and leaves them waiting unnecessarily before they can access the full amount they are owed. This is due to an oddity within the PAYE system which means they are placed on an emergency tax code when they first withdraw from their pension pot. For those who need to access their funds quickly, this can present a significant hurdle.
“For those who are planning to access their pension funds for the first time, there are steps you can take to help you avoid this emergency tax. Wherever possible, you should speak to a professional financial planner who can help reduce the risk of paying excessive tax upfront that you would otherwise need to reclaim. You can achieve this via several smaller withdrawals, as opposed to an initial lump sum. This ensures that most of the withdrawal utilises an updated tax code, preventing emergency taxation on the full amount.
“This has caused a significant issue for those who are accessing their pension funds for years and has been exacerbated by the strain that the cost of living crisis has had on people’s finances over the last year or so. The system is desperately in need of an overhaul as, at present, the process is leaving people facing unnecessary emergency tax and adding additional strain at a time when many are still struggling with the cost of living.”
