HM Revenue and Customs (HMRC) repaid a total of £61.3m to people who overpaid tax when they flexibly accessed their pensions in Q3 2023, up from £33m in Q3 2022, the latest Government pension schemes newsletter has revealed.

The update confirmed that HMRC repaid a total of £61,305,602 from 1 July 2023 to 30 September 2023, nearly double the £33,088,782 repaid in the same period in 2022.

The tax repayments on flexible withdrawals are necessary as HMRC applies an emergency 'month 1' tax code on the first withdrawal, which can lead to an initial over-taxation.

People reclaiming overpaid tax must fill in one of three forms, with the latest update revealing that HMRC processed a total of 18,851 during the period, including 12,007 P55 forms, 4,890 P53Z forms, and 1,954 P50Z forms.

Quilter chartered financial planner, Ian Cook, highlighted the "staggering" figures as evidence of the pressure the cost-of-living crisis is playing on everyday finances, with more people choosing to access their pension funds flexibly as a result.

He stated: "HMRC has seen a significant 89% increase in the number of claim forms processed compared to Q3 2022, illustrating how many more people are turning to their pension pots to help them get by compared to last year.

"Unfortunately, those people are still stuck with an archaic system that over-taxes them and leaves them waiting for long period before they can access the full amount owed.

“This is because they are placed on an emergency tax code when they first withdraw from their pension pot, which is particularly frustrating for those trying to access their funds quickly. Often people do not understand why this has happened given it arises due to an oddity within the PAYE system.

“The figures starkly illustrate the pressure the cost-of-living crisis is placing on everyday finances, with more people choosing to access their pension funds flexibly as a result.

“This has been an issue for years and the system needs an overhaul. The current process is leaving an increasing number of people facing emergency tax at a time they need their money most.”

In addition to an update on the latest pension flexibility statistics, HMRC confirmed that it received 831 applications to register new pension schemes from 6 April 2023 to 30 September 2023.

Of these applications, 57% were registered, while HMRC has refused registration for about 12% of applications.

No decision has yet been made on the remainder.

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