“The damage has been colossal, with a staggering £925mn reclaimed through the official channels so far.”
Selby explained that millions of savers who have accessed their retirement pot in line with the rules rightly expect the government to take the correct amount of tax from their withdrawal.
“However, HMRC’s approach to the taxation of pensions withdrawals continues to be a quiet scandal that risks exacerbating the cost-of-living crisis for tens of thousands of savers,” he added.
“As inflation tightens its grip on UK households, forcing many to turn to their retirement pots to make ends meet, the problem will likely get worse over the next 12 months.”
It is possible to get money back within 30 days, but only if you fill out one of three HMRC forms to reclaim the money.
“If you don’t, you are left relying on the efficiency of HMRC to repay you at the end of the tax year,” he said.
“This approach was bad enough before, but with inflation spiking and millions of Brits struggling to make ends meet, it feels particularly cruel.”
Like Webb, Selby argued that the true figure is likely much higher as many of those who have been overtaxed – in particular people on lower incomes who are less familiar with the self-assessment process - will not fill in one of these forms.
Meanwhile, Jon Greer, head of retirement policy at Quilter, said the pension tax overpayment reclaims remained steadily high in the third quarter of 2022.
It was down slightly on Q2’s £33.7mn but still 50 per cent higher than Q1 2022.
“The number of claims forms processed also remained very high, highlighting a sustained need for people to access their pension funds as the cost-of-living crisis takes a firmer grip on their everyday finances,” he said.
“Despite so many people needing quick access to their funds, this clunky system results in a drawn-out process that means people have to wait far longer than they may have anticipated to receive the full amount they expected.”
Greer added: “The cost of living crisis is now putting a real strain on people’s finances, and the number of people needing to access their pension savings to help them get by will likely continue to rise in the coming months.”
Dissecting the figures, Greer explained that in the past year alone – Q4 2021 to Q3 2022 - pension tax overpayment reclaims totalled £131.3mn, a considerable increase compared to the £126.6mn the year prior as more people have been forced to dip into their pension pots.
He explained that the trend in these figures only shows withdrawals including a taxable element, and therefore will not capture those that took their tax free cash alone.