“Call for system overhaul as HMRC pays back £42mn in pension tax”

Apr 29, 2024 | Tax

Next year’s budget (who knows who’ll be presenting that) will be the tenth anniversary of ‘Pension Freedoms’ which introduced flexible drawdown, allowing all of a certain age to access pensions at will. If you take more than your 25% tax-free lump-sum as a willy-nilly one-off lump-sum, it is, of course, taxable, and is usually taxed at emergency rates. This often means the pension company has to assume that the withdrawal you’re making is the first of a number of income payments in that tax year and will deduct accordingly. It’s then up to you to reclaim by finding and filling in the appropriate form. What a waste of time for everyone, a waste which often means drawing more than is needed to cover a current crisis, just because of the faff involved in reclaiming. There are ways around, taking a small amount first, for instance to get a tax code issued; but that, too can take time. There has, surely, to be a better way.

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