DWP state pension claimants are being urged to use a simple £1 pension withdrawal trick that could help some pensioners avoid a £3,100 tax overpayment — with experts advising professional guidance before making any withdrawals
DWP state pension claimants are being urged to use a simple pension withdrawal trick(Image: MoMo Productions via Getty Images)
State pensioners are being urged to employ a simple £1 strategy to avoid facing a £3,100 tax bill. Recipients of Department for Work and Pensions (DWP) state pension payments have been advised that this £1 method could prevent them from unnecessarily overpaying £3.1k in taxation.
Recent figures from HMRC reveal that during the period spanning January to March this year, nearly 14,000 individuals were forced to reclaim tax following flexible pension access. Within just three months, more than £44.1million was reimbursed, according to wealth management firm Quilter.
Adam Cole, Retirement Specialist at Quilter, noted the average refund stands at slightly above £3,160. Mr Cole commented: “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.”
Tom Selby, director of public policy at investment platform AJ Bell, explained that enhancements to the Government’s tax code procedures have enabled individuals to transition more rapidly from emergency codes to ones ensuring correct tax payments.
According to him, savers planning to make a single withdrawal during a tax year can sidestep being overtaxed by initially withdrawing a nominal amount, such as £1, reports Birmingham Live.
He continued: “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 continued: “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 further stated: “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 encouraged pensioners to plan meticulously before taking withdrawals, noting that expert guidance can help prevent upfront tax overpayments.
Mr Cole remarked: “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.”
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