State pensioners urged to withdraw £1 to escape having to pay £3,100
State pensioners are being urged to use a £1 trick to escape a £3,100 bill. Department for Work and Pensions ( DWP ) state pension claimants have been told a £1 trick can stop them overpaying £3.1k in tax.
HMRC’s latest figures show that between January and March this year almost 14,000 people had to reclaim tax after accessing their pension flexibly. More than £44.1million was repaid in just three months, according to wealth management company, Quilter.
Quilter’s Retirement Specialist, Adam Cole, said the average payout is slightly over £3,160. Mr Cole said: “That suggests fewer people may be caught by emergency tax, but when it happens the sums involved are larger, leaving retirees out of pocket while they wait for HMRC to return their own money.”
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Tom Selby, director of public policy at investment platform, AJ Bell, said improvements to the Government’s tax code process meant people would be moved more speedily from an emergency code to one that sees them pay the right amount of tax.
He says savers who want to make a single withdrawal in a tax year can avoid being overtaxed by first withdrawing a notional sum, like £1.
He added: “Alternatively, you can fill out one of three HMRC forms and you should receive your tax back within 30 days. If you don’t do this, the Revenue says it will put you back in the correct tax position at the end of the tax year.”
Mr Cole added: “Until pension taxation better reflects how people actually access their money in retirement, thousands of savers will continue to face unnecessary complexity and cashflow disruption.”
Mr Cole added: “PAYE was designed for predictable monthly earnings, not ad hoc pension withdrawals, and as a result it continues to generate avoidable overpayments that have to be corrected after the fact.”
He urged retirees to plan carefully before making withdrawals, adding that professional advice can help avoid overpaying tax upfront.
He said: “In broad terms, the draft regulations are functional rather than radical, providing reassurance that access at 55 will continue to be treated as an authorised event for those who already qualify.”