Pensions - Articles - HMRC breaks its own record overtaxing people on pensions

 Under current tax rules, when an individual withdraws money from their pension, HMRC makes assumptions about how many more times they will make withdrawals over the rest of the financial year. By assuming that the individual will make lots of withdrawals, HMRC assumes that people will often go into the 40% tax band and therefore takes a large chunk of tax from the withdrawal. This will often be a false assumption, but individuals then have to fill in one of three different forms to get their money back, or wait until the end year tax return process. The Government’s own Office for Tax Simplification has called on HMRC to review this process of applying ‘emergency’ tax codes to pension withdrawals, but HMRC has refused to act.

 Steve Webb, Director of Policy at Royal London said: ‘Even by their own low standards, HMRC have outdone themselves in the last three months, taking more than £54m of savers’ money in income tax to which they were not entitled. It cannot be right that tens of thousands of people each year have too much tax taken out of their pension and then have the hassle of filling in a form to get back money that is rightfully theirs. Whoever ends up running the country after the General Election needs to tell HMRC to stop this practice as a matter of urgency’.