“This is a considerable uplift compared to the first quarter of this year, and a slight increase compared to the same period a year ago, which may suggest that despite cost of living pressures easing somewhat, more people are still reliant on their pension pots to help them get by. These figures show there is a growing issue given this huge amount of money is being repaid as a result of the incorrect amount of tax being charged on pension income. In Q2 2024, the average tax refund per saver was £3,540 – up by almost £400 compared to Q1.
“The rising number of claimants represents a large amount of people being over-taxed and waiting unnecessarily for their funds due to a clunky system that is in much need of reform. There is a major flaw within the PAYE system in that while it works for regular income, the way pensions can be taken does not align with the system's design, and as a result retirees have been heavily impacted since pension freedoms were introduced in 2015. It places people on an emergency tax code when they first withdraw from their pension pot, which can present a significant issue for those who were hoping to access their funds quickly.
“Given this issue has been ongoing for many years and there are no signs of it being resolved any time soon, it is vital that wherever possible, those who are planning to access their pension funds for the first time seek the professional advice of a financial planner as they can help reduce the risk of paying excessive tax upfront that you would otherwise need to go through the often slow process of reclaiming. There are several steps you can take to help mitigate this issue, including taking several smaller withdrawals rather than an initial lump sum to ensure that most of the withdrawal utilises an updated tax code and you do not pay emergency tax on the full amount.
“The system is desperately in need of an overhaul as, at present, the process is leaving people facing unnecessary emergency tax and adding additional strain at a time when many are still evidently reliant on their pension funds.”
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