There's growing pressure on the government to review the 'emergency tax' treatment of pension freedom withdrawals. This follows the revelation that £372.5 million has now been reclaimed by pension savers since pension freedoms were launched by George Osborne in April 2015. More than £38 million was reclaimed in quarter three of 2018 alone, the highest figure on record.
Pension savers are able to reclaim the money deducted by HM Revenue and Customs emergency tax treatment, but many pension experts have warned that the majority of savers won't fill out the necessary forms, resulting in them being overtaxed.
Sir Steve Webb, the former pensions minister said: "HMRC is clearly out of control. It operates a system of "tax first, ask questions later", presumably so that the Government can enjoy some extra interest until the money is claimed back."
"It is time to speak up for ordinary citizens who are forced to pay excessive amounts of tax and then go through the hassle of claiming it back. This is a system built around the needs of the Treasury and the bureaucracy, not one which puts people first," he added.
The introduction of pension freedoms and their popularity with pension savers has resulted in a significant boost for HM Treasury's coffers. A report by the Office for Budget Responsibility that was published alongside the recent Budget revealed that there is a significant upgrade in the estimated pension freedoms tax take for 2018-19. It revealed that the Treasury will net an extra £400 million as a result of people paying tax on their retirement withdrawals.