HM Revenue & Customs (HMRC) repaid more that £36.8m in overpaid tax on pension payments in the third quarter, according to data published yesterday (30 October).
This is an increase of 37 per cent when compared with the figures of the previous quarter, of £26.8m.
In the three months ending in September, the taxman processed 16,168 forms, more than the 10,576 processed until the end of June.
According to Tom McPhail, head of policy at Hargreaves Lansdown, the average tax reclaim in the past quarter is just under £2,300, with around 8 per cent of those who took a flexible payment from their pension making a reclaim.
He said: “In theory, HMRC processes mean even if you don’t fill in the form and immediately reclaim overpaid tax, you should eventually get the money back.
“The problem is HMRC isn’t infallible: if you don’t take the initiative and ask for the money back, you risk missing out; at best, you’ll miss out on the use of the money for up to a year.”
Mr McPhail argued that this is “a clumsy system which is certainly not designed with the best interests of the investor at its heart”.
He said: “HMRC and pension providers should be able to request the appropriate tax code in advance of making any payment, the technology is there to do this kind of thing.”
Under current rules, individuals seeking to withdraw a lump sum from their pension are usually taxed on an ‘emergency’ tax code, which leads to an over-payment.
Sir Steve Webb, director of policy at Royal London, is asking for a change in this policy, and advocating that HMRC should only take the standard rate tax and collect any extra tax due through the usual end-year tax return process.
If you think you might be affected by this you can contact HMRC via the usual methods and remember to let your accountant know when you’re filing your self assessment,