31st July 2017
Thousands of over-55s who have made a one-off withdrawal from their pension may have paid too much tax in 2016/17, according to a Freedom of Information request.
Research by the Telegraph suggests as many as 200,000 savers have overpaid, many of whom will be unaware they are paying over the odds.
HMRC is not proactively contacting those affected, with only 42,700 savers attempting to reclaim deductions relating to the 2016/17 tax year.
Steve Webb, a director at insurer Royal London, said:
"It cannot be acceptable to take thousands of pounds per person in excess taxes, and then expect people to have to claim that money back.
"The rules need to be changed so that only basic-rate tax is deducted and any extra tax due is collected through the normal tax return process. This would be a far fairer system."
Savers must fill out 1 of the following forms to reclaim tax on their withdrawals, depending on whether they accessed cash from a defined benefit or defined contribution scheme.
From defined benefit schemes:
• self-assessment tax return - on lump sums
• P53 - for those who don't fill in self-assessment tax return.
From defined contribution schemes:
• P50Z - if you withdrew your pension pot and have no other income in the tax year
• P53Z - if you withdrew your pension pot and have other sources of income in the tax year
• P55 - if you withdrew part of your pension pot and are not receiving regular payments.
Contact us if you think this affects you.