Budget 2021: Money Box caller questions absence of pensions
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
The warning comes after HMRC figures show that £794million has now been repaid to people overtaxed on retirement withdrawals since the Pension Freedoms legislation was introduced in April 2015, but many are still waiting.
Pension freedoms were introduced by the government in 2015 and enabled consumers to flexibly access their Defined Contribution or Money Purchase pension pots from the age of 55.
However, anyone who has taken advantage of this will have been overtaxed as the HMRC applies an emergency tax code to the first month.
Retirement experts say this means many people who only took out one withdrawal during the year will have been overtaxed – potentially by thousands of pounds.
Tom Selby, head of retirement policy at AJ Bell explained: “Savers accessing their pension need to be aware that HMRC will apply an emergency ‘Month 1’ tax code to their first withdrawal, meaning they will initially be overtaxed – potentially by thousands of pounds.
He added: “While those taking a regular income should have their tax code adjusted automatically, anyone making a single withdrawal in the tax year will need to fill out one of three HMRC forms to get their money back within 30 days.
“If they don’t, they will need to wait to the end of the tax year, when HMRC says they should receive a rebate.”
To ensure they get their money back they will need to fill out an HMRC form, something that experts say is cumbersome.
They are now calling on the process to be automated as soon as possible to stop people being left out of pocket.
‘Never click it!’ Martin Lewis explains how to spot a scam online [WARNING]
Free NHS prescriptions axed for over-60s. Who now pays – and who WON’T [UPDATE]
Capital Gains and Inheritance Tax changes ‘must come to the fore’ – Brits urged ‘act now!’ WARNING]
Mr Selby added: “The Government is looking at increasing digitisation in the administration of pension tax relief as part of the Budget.
“Policymakers should use this opportunity to assess the current approach to the taxation of pension freedoms withdrawals.
“At the moment savers risk being left out of pocket to the tune of thousands of pounds when they access their retirement pot.
“ If this process could be automated and the need to fill out a complex reclaim form removed, it would significantly improve the tax system for retirees.”
Jon Greer, head of retirement policy at Quilter said emergency tax is often charged when people start to dip into their pension.
“It’s a little understood quirk of the PAYE system that results in considerable tax overpayments. The fact that overpayments are on the rise throughout the year suggests more and more pension savers are dipping into their pension.
“This highlights the importance of getting financial advice before touching your pension. HMRC will make a repayment automatically, but this could take some time so if you want a refund to come through more quickly, then make a repayment claim yourself to avoid waiting for HMRC.”
What is happening where you live? Find out by adding your postcode or visit InYourArea
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown said this should have been sorted a long time ago.
“People drawing money from their pensions have been overcharged an eye-watering £44 million. And this isn’t some kind of horrible mistake by the taxman, it’s how the system is intended to work.
“Today’s figures show HMRC has paid out yet another whopping sum to people who were over-taxed when accessing their pensions. The problem is that people pay tax on lump sums as if they were going to keep drawing them for the rest of the tax year. They then either need to apply for a refund or wait to the end of the tax year.
“This is a system ripe for reform and given the government recently confirmed its intention to invest in improving how pension tax reliefs are administered we must hope they will also look to bring this system out of the dark ages.”
A Department for Work and Pensions spokesperson told Express.co.uk: “The Government decided over 25 years ago that it was going to make the state pension age the same for men and women as a long-overdue move towards gender equality. Raising State Pension age in line with life expectancy changes has been the policy of successive administrations over many years.”
Source: Read Full Article