• Just 7,649 pension tax reclaim forms were processed in Q2 2020, compared to over 10,000 in the previous quarter and over 17,000 a year earlier
• Some £27 million was repaid to overtaxed savers between April and July, down from almost £47 million in Q2 2019
• However, the average per person reclaim hit a record high of £3,560 in Q2 - £845 higher than during the same period last year
• Total amount reclaimed by people overtaxed on pension freedoms withdrawals has now reached £627 million
Tom Selby, senior analyst at AJ Bell, comments:
“Hard-working savers continue to be unfairly overtaxed for flexibly accessing their retirement pot.
“While people taking a regular income should have their tax position sorted out automatically, those making a single withdrawal will either have to fill out one of three official forms or wait for HMRC to put them right at the end of the tax year.
“The overtaxation figures for April to July were always likely to be affected by COVID-19, with far fewer claims processed than usual.
“This may be because HMRC was stretched to breaking point as it responded to the challenge posed by the pandemic. However, it is clearly not ideal that thousands fewer people made a reclaim for the tax they were owed at a time when families were already facing up to huge financial pressures during lockdown.
“Furthermore, while the total amount reclaimed dropped slightly in Q2, the average per person reclaim hit a record high. In short – the pension freedoms overtaxation problem appears to be getting worse rather than better.
“We are over five years into the pension freedoms and HMRC’s approach to the taxation of withdrawals – which was never formally consulted on – still hasn’t been officially reviewed. This affects hundreds of thousands of people, with the obvious risk that those who fail to make a reclaim are left short of cash when they need it most.
“Given the Treasury is already reviewing pension tax administration in relation to net pay pension schemes, it would make sense to review HMRC’s approach to the taxation of pension freedoms withdrawals alongside this.”
