HMRC has steadfastly refused calls to re-think its stance on the taxation of pension freedoms withdrawals.
The UK taxation body has underlined its stance in its latest newsletter stating that – despite calls for change – it will not be revisiting the policy. Under existing rules providers are required to charge ‘Month 1’ emergency tax the first time someone uses the pension freedoms to access their retirement pot.
This means people who make a single flexible withdrawal from their fund in a tax year receive 1/12th of their usual tax allowances.
Pension and investmest specialists AJ Bell called the stance “a bitter blow to millions of savers” pointing that the pensions industry has been pressing for the Revenue to revisit its approach, while the Office of Tax Simplification (OTS) recently warned rules governing the taxation of pension freedoms withdrawals are “poorly understood” by consumers.
Despite this, the latest HMRC update stated that it will not revisit the policy
Tom Selby, pictured left, senior analyst at AJ Bell, called the decision “a disappointing stance” stating that people withdrawing their pension have been “overtaxed by hundreds of millions of pounds” over the past few years.
“While almost £300 million has been repaid to savers since the pension freedoms were introduced, many more who didn’t fill out the required forms will have been left short-changed for up to a year,” he said.
“By continuing to overtax people who use the pension freedoms as the Government intended, HMRC risks pushing people into financial difficulty and forcing them into taking out more than they need to, potentially creating an extra tax liability as a result.
“HMRC’s belligerent refusal to countenance any public debate on this issue is deeply frustrating. The current system was introduced without consultation and leaves millions of savers at risk of being hit with a shock tax bill.
“At the very least we need a public consultation on HMRC’s approach to determine whether the current approach can be improved for the benefit of savers.”