‘Emergency tax’ pension quirk has cost savers almost £1bn since 2015
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Depositors into their pensions have been wrongly taxed nearly £1bn since 2015
Depositors into their pensions have been wrongly taxed nearly £1bn since 2015.
Over-55s who withdrew from their pension pots for the first time paid more than £134 million in excess tax in 2022, official figures show.
More than 40,000 people had to reclaim an average of £3,427 each last year after triggering a long-running quirk in the tax system known as an ’emergency tax’.
Wrongly taxed: Over-55s to overpay more than £134m in tax for the first time in 2022, official figures show
In the last three months of 2022, almost £45 million was returned to depositors.
The fiscal disruption dates back to 2015, when the pension freedom rules were introduced. Since then, over-55s have overpaid £970 million.
When savers withdraw their pension, it is treated as if it were a regular monthly payment, even if it is a one-time withdrawal.
For example, someone who withdraws £10,000 will be taxed as if they were earning £120,000 a year. It means tens of thousands of older workers diving into retirement to make ends meet while prices rise could end up getting thousands of pounds less than they expect.
Overpaid tax should be automatically refunded when HMRC reviews tax codes.
However, you can wait up to a year before getting your money back.
l.purkess@dailymail.co.uk