HMRC has published its latest newsletter which highlights the total value of reclaimed emergency pension tax on flexible withdrawals - £716m since 2015. See here: https://www.gov.uk/government/publications/pension-schemes-newsletter-129-april-2021
Emergency tax is applied on flexible pension withdrawals when the pension provider doesn’t have a tax code from HMRC. It is down to the customer to reclaim overpaid tax from HMRC using one of three forms, depending on their individual circumstance.
Andrew Tully, technical director, Canada life commented:
“For most people the tax system is fiendishly complicated so it comes as no surprise £716m has been repaid to people in over-paid emergency tax since 2015. The pension tax system was never adapted to the way people are using the flexibility of the pension freedoms so have to complete one of three separate forms to reclaim tax.
“One way to ensure you don’t pay too much tax is to request a small withdrawal from your pension provider, of say £100 initially. This will trigger the generation of a tax code from HMRC which is automatically sent to the pension provider. Subsequent withdrawals should then be taxed more accurately.
“If in doubt, always consult the help of a professional adviser, or use one of the freely available online tools to check the amount of tax you should be paying.”