Royal London: Pension tax system requires overhaul

Royal London: Pension tax system requires overhaul

Royal London director of policy Steve Webb has called for reform to the way pension withdrawals are taxed, as new HM Revenue & Customs (HMRC) figures reveal that tax over-payments since the start of pension freedoms have now reached more than £280 million.

HMRC has to repay more than £22 million in taxes collected from those making ‘flexible’ withdrawals from their pension savings. This takes the running total since the start of the new system in April 2015 to around £285 million.

HMRC taxes withdrawals using an ‘emergency’ tax code, which “routinely results in an excessive tax deduction which then has to be reclaimed”, according to insurance company Royal London.

Three forms exist for the purposes of claiming a refund, “a reminder of the complexity of the process”. More than 10,000 people had go through the process to claim back overpaid tax in the last quarter.

Commenting, Webb said: “These quarterly figures are a regular reminder of the absurd way in which pension withdrawals are taxed. HMRC is perfectly happy to over-tax tens of thousands of people each year and make them jump through hoops, having to choose between three different forms to complete and then wait to get their money back.”

“This is a system run for the convenience of HMRC, not the taxpayer. It is time to move to a simple system where basic rate tax is withdrawn at source and any adjustment is made through end year tax returns.”

Categories: News, UK Pensions

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