Jonathan Ashworth calls for return of pension triple lock
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From January 1 to March 31, 2022, HMRC paid out over £22million to people who overpaid tax. The people in question had accessed their pensions flexibily which resulted in them receiving payment from the tax body. If someone accesses their pension flexibly, that individual is levied on a “Month 1” basis.
This means they are viewed by HMRC as receiving that sum every month which results in them overpaying in tax.
In order to rectify this issue, taxpayers who have overpaid need to fill in at least one of three forms.
Over this period of time, HMRC reported that 7,412 of these forms, specifically for tax overpayment, had been processed.
For the wider year, between April 2021 and March 2022, the Government body has repaid over £100million in overpaid tax.
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Britons are allowed to access their pension pots flexibly thanks to Pension Freedoms legislation.
Introduced in 2015, this allows savers to flexibly access their defined contribution pension from the age of 55.
They are able to use these funds for a wider range of options, which can include cash withdrawal or retirement income products.
Helen Morrissey, a senior pensions and retirement analyst at Hargreaves Lansdown, shared how this legislation had led to people overpaying in tax.
Ms Morrisey explained: “Pension Freedoms have been in place for several years now and the issue of overpaid tax has always been a problem.
“Yet we continue to see thousands of people overpaying by hundreds of millions of pounds every year.
“There must be an easier way for people to be able to access their hard-earned pension cash without being clobbered by tax that they then need to work out how to reclaim.
“It’s a real fly in the ointment of the Pension Freedoms that have been embraced by society.”
In light of these figures, Ms Morrisey recommended that reform was necessary to prevent this issue from happening again.
She added: “The data shows HMRC processed over 7,400 forms in the last quarter alone – over the entire pension freedoms period this must mount up to way over 100,000 applications as people reclaim their own money.
“It must come as anything from a nasty shock to those who aren’t expecting it, to annoyance and inconvenience for those who do.
“Pension freedoms are embedded into the retirement landscape now and it is time the system was reformed to reflect changed behaviours and make it easier for people to access their pensions.”
The income tax rate for 2022 to 2023 for England and Northern Ireland will remain the same as the prior year.
This means that for this tax year, the basic rate is 20 percent while the higher rate is 40 percent.
It is possible to reclaim tax relief on pension contributions if someone has paid income tax at a rate above 20 percent and their pension provider claims the first 20 percent for them.
Alternatively, taxpayers can reclaim if their scheme is not set up for automatic tax relief or if someone else has paid into their pension
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