HMRC were in the press yet again recently, with the latest figures showing they refunded overpaid pension tax of £42M to over 13,000 pensioners in Q4 of 2021.
This is potentially just the tip of the iceberg as it only includes those who proactively sought their refunds; the actual figures could be significantly higher once annual returns are submitted.
So, is it all HMRC’s fault? Well in short yes! It’s well known that HMRC systems are outdated and aren’t well suited to the flexi-access pensions world we now live in. The PAYE system in use typically results in initial lump sum payments being taxed on an emergency code, meaning most people don’t get to use the personal allowance they’re entitled to.
But while it may be HMRC’s fault, administrators could, and perhaps should play a bigger role in better customer outcomes to reduce the impact the current system causes. After all, it’s possible to proactively correct the situation for the client and always ensure they’re in the best possible tax position. Administrators can perform corrective or “zero-value” payments to affect a tax refund upon request, on a regular basis or even automatically on receipt of a new coding notice which is typically issued in response to the lump sum payment. If Administrators were to enhance their payment process in such ways, they would be able to support members in expediting the return of money owed, which is always welcome especially with the increase to the cost of living that we are all feeling.
Unfortunately, many administrators don’t understand the rules well enough to know if or how they can help. Even if they do, the operational overhead is seen as impractical or the payroll systems they use don’t offer the flexibility required. But specialist pension payroll systems, such as our own Altus Pensions Gateway, already exist and provide both manual and automated tax refund processing. Perhaps it’s time administrators took charge of the problem and proactively offered these services to help their customers. After all, ensuring and supporting the best customer outcome should be at the heart of any proposition.
