More than 15,300 people have signed an online petition calling for changes to pension withdrawals in the Autumn Budget.
Income tax rises for Scots in April – how the changes affect you
More than 15,300 people have signed an online petition urging Chancellor Rachel Reeves to introduce a ‘Pension Tax Lock’ at the Autumn Budget to “help protect retirement savings and incentives”. Petition creator Michael Glenister is calling for a commitment from the UK Government “not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions”.
The campaigner believes such a move would “help ensure retirement savings are protected and people can save with confidence”. He also argues that such a measure would “put an end to the speculation seen ahead of every Budget”.
Something he claims “erodes confidence in long-term saving and can all-too-often lead to people making poor, sometimes irreversible, financial decisions”.
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The campaigner adds: “We think this would come at zero cost to the Exchequer and would allow people to save for retirement with more confidence. We feel it could support the government’s twin aims of delivering pensions adequacy and boosting economic growth.”
The ‘Introduce a Pension Tax Lock to help protect retirement savings and incentives’ petition has been posted on the Petitions Parliament website where it has already passed the 10,000 signatures threshold.
This means it is now entitled to a written response from the UK Government. At 100,000 signatures, it will be considered by the Petitions Committee for debate in parliament. You can read it in full here.
Tax refunds on pension withdrawals
HM Revenue and Customs (HMRC) issued £48.7 million in refunds between April 1 to June 30 for overpaid tax on pension withdrawals.
Retirement expert Helen Morrissey said that the latest data from HMRC indicates close to 13,000 refund forms were processed during this time with the average refund worth around £3,800.
Ms Morrissey explained that people accessing a lump sum from their pension for the first time can be taxed too much. The main reason is that the HMRC system mistakenly believes that the same amount will be withdrawn every month, which can lead to an unexpected tax bill.
However, the head of retirement analysis at Hargreaves Lansdown explains the money can be reclaimed from HMRC, but it can be an ‘admin headache’.
Ms Morrissey said: “The overpaid pension tax saga continues to drag on. In just three months, HMRC has repaid a whopping £48.7m to people who paid too much tax for simply accessing their pension. With an average refund of around £3,800, these refunds amount to a significant chunk of change.
“The problem hits people who are taking a lump sum from their pension for the first time. They get taxed on what is known as a ‘month 1’ basis, which means it’s treated as though the same amount will come out every month. This results in a far bigger tax bill, which can come as an unpleasant surprise or even de-rail people’s retirement plans.”
The retirement expert added: “The money can be reclaimed. HMRC processed close to 13,000 forms between the beginning of April and the end of June, but it’s an admin headache that people can well do without. Ten years on from the advent of Freedom and Choice it’s a process that should have been consigned to history.”
Ms Morrissey also explained how to avoid an unexpected tax bill.
She said: “There are things you can do to mitigate it. For instance, you could make your first pension withdrawal a relatively small one.
“However, if you were looking to take a lump sum to fund travel or home renovations, for instance, you will need to plan ahead to make sure the money you take isn’t whittled away by tax which could delay your plans.
“If you do get clobbered with a big tax bill, then you will need to fill out one of three forms so that HMRC can process the refund. Otherwise, you can wait until the end of the tax year.”