UK's HMRC repays over £42m in overpaid pensions tax in Q4 2021

The UK's HMRC has repaid an estimated £835m in overpaid tax on flexible pension withdrawals since pension freedoms were introduced in 2015, after the latest government Pension Schemes Newsletter confirmed that HMRC repaid £42,188,885 in Q4 2021.

The represents a more than £16m year-on-year increase in flexible pension withdrawal tax repayments from HMRC, with a total of £25,766,055 repaid in Q4 2020.

The tax repayments on flexible withdrawals are necessary as HMRC applies an emergency 'month 1' tax code on the first withdrawal, which can lead to an initial over-taxation.

However, LCP partner, Steve Webb, argued that "it is a disgrace that ordinary savers who want to access their pension savings flexibly are routinely overtaxed and then forced to claim back this excess tax".

"HMRC’s approach is to tax first and ask questions later," he continued. “This ‘money merry-go-round’ where people have large amounts of tax deducted and then have to claim back some of it has gone on long enough.

"The system is run purely for the administrative convenience of HMRC rather than the benefit of taxpayers."

In light of this, Webb argued that it would be "much fairer" to deduct basic rate tax from pension withdrawals and then adjust the amounts paid if this did not give the right answer, rather than overtaxing thousands of people every month.

Industry experts have previously urged the government to address the "serious flaw" in the pensions tax system, warning that the issue has left hundreds of thousands of people with a shock over-taxation since 2015.

The newsletter also confirmed that the government was again extending Covid-19 easements on obtaining wet signatures until 31 March 2024, whilst all other temporary changes for relief at source will end on 31 March 2022.

    Share Story:

Recent Stories

An overview of growth investing
European Pensions Editor, Natalie Tuck, speaks to American Century Investments (ACI), Vice President, Senior Client Portfolio Manager, Kevin Lewis on growth investing.

They discuss how it has performed in 2021, and its outlook, going forward. They also cover ACI’s differentiated growth approach to the investment universe, and how this capitalises on market inefficiencies, as well as how ACI’s team is equipped to invest in this manner.
Podcast: The benefits of private equity in pension fund portfolios
The outbreak of the Covid-19 pandemic, in which stock markets have seen increased volatility, combined with global low interest rates has led to alternative asset classes rising in popularity. Private equity is one of the top runners in this category, and for good reason.

In this podcast, Munich Private Equity Partners Managing Director, Christopher Bär, chats to European Pensions Editor, Natalie Tuck, about the benefits private equity investments can bring to pension fund portfolios and the best approach to take.

Podcast - The power of three: Using Common Contractual Funds to improve tax outcomes for investors
Large asset owners are still investing in equities in a way where they are taxed on their income. The implication is that they get a poorer return. They need to, and can, improve this, but how?

In this podcast, AMX Head of Client and Manager Development, Aaron Overy, and AMX Product Tax Specialist, Kevin Duggan, discuss with European Pensions Editor, Natalie Tuck, about three options to help ensure good withholding tax outcomes for institutional investors.

Mitigating risk
BNP Paribas Asset Management’s head of pension solutions, Julien Halfon, discusses equity hedging with Laura Blows