Almost £1bn in unnecessary tax on pension withdrawals has been paid by Brits. The figure has come about because of HMRC rules that treat one-off withdrawals like they will be repeated.
The taxpayers eventually get their money back, but the process can take many months. It only adds to the pressures hard-up people in Nottinghamshire and elsewhere are facing.
The Express reports that the average overpayment is now £3,141 and pension savers face a complex process to get hold of their own money again. The overpayment total is going up nationally by £15m a month.
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HMRC data shows savers have reclaimed £970m in overtaxation since 2015’s pension freedoms allowed the over-55s to make flexible cash withdrawals from their retirement pots. Tax repayments hit a record £45m between October and December, with 14,355 claiming.
As surging inflation eats into people’s spending power, savers withdrew £33.6bn between April and June last year, up a quarter on the previous year.
Tom Selby, head of retirement policy at AJ Bell, says many people affected by this will be on lower income incomes who are less familiar with the self-assessment tax return process. These same people cannot afford to wait for money that is rightfully theirs.
Selby said: "It is scandalous that the Government has done nothing to address this issue almost eight years since pension freedoms were introduced. HMRC data shows drawdown savers made a staggering £3.6billion of flexible pension withdrawals between April and June last year, up 23 percent on 2021."
However, Selby had a warning for people thinking of taking an early pension drawdown. He said pensioners who draw unsustainable amounts from their savings in the early years of retirement “risk running out of money later".
Many older homeowners are facing a further squeeze as mortgage rates rise, with 3.3m over 55s still repaying their mortgage, according to equity release adviser Key. Of these, almost a million will find it tougher to repay their borrowing as household bill rise too, said Key chief executive Will Hale.
Growing numbers are turning to equity release lifetime mortgages to raise money against the value of their property. Equity release allows homeowners aged 55 and over to release a percentage of their property value as tax-free cash, while retaining ownership of their home.
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