In Q4 of 2021, HMRC refunded overpaid pension taxes of £42M to over 13,000 pensioners. Given that only individuals who actively requested refunds are included in this number, this may merely be the tip of the iceberg. Once annual returns are done, the true numbers may turn out to be far higher.
Getting pensioners the money they are entitled to #
HMRC systems are outdated and not well suited to the flexible-access pension world we currently live in. The current PAYE system they are using typically results in initial lump sum payments being axed on an emergency code. This means, most people don’t get to spend the cash they’re entitled to.
Administrators need to take more initiative in reducing the impact the current system causes. After all, it is possible to implement proactive measures to make sure the client is always in the optimal tax position.
Administrators have the option to make corrective payments to influence a tax refund on-demand, periodically, or even automatically upon receiving a new coding notice. New coding notices are usually issued in response to the lump sum payment.
Administrators may help members expedite the return of money owed if they improved their payment procedure in this way. This would help pensioners a great deal, especially given the recent and continuing rise in inflation.
Administrator challenges #
Unfortunately, administrators face roadblocks that discourage them from making these changes. For one, many don’t understand the rules well enough to know how they can help. And in the case that they do understand the rules, the overhead costs associated with such transactions are seen as impractical. Additionally, many of the payroll systems they use don’t offer the level of flexibility required to get this done.
However, there are specialist pension payroll systems, such as our own Equisoft/pay that provides both manual and automated tax refunding processing. Administrators need to proactively offer these services to help their customers. After all, the core of any proposition should be assuring and supporting the optimal customer outcome.