HM Revenue and Customs will not change the way it taxes flexible pension drawdown payments saying any changes would not improve the tax position of consumers.
In its June pension schemes newsletter, HMRC says the review of the current system has concluded the existing process remains the most effective method of deducting tax.
It says the current system reduces the risk of underpayments of tax when people access their pensions.
HMRC says it will continue to keep the current process under review, monitor drawdowns and related claims.
The current rules are contested by the pensions industry, which has been pressing HRMC to revisit its approach.
HMRC’s May newsletter showed savers have been over-taxed more than £280m since the start of the pension freedoms.
The Office of Tax Simplification recently warned rules governing the taxation of pension freedom withdrawals are poorly understood by consumers.
AJ Bell senior analyst Tom Selby says: “This is a disappointing stance from HMRC when you consider that people withdrawing their pension have been overtaxed by hundreds of millions of pounds over the past few years.
“While almost £300m has been repaid to savers since the pension freedoms were introduced, many more who didn’t fill out the required forms will have been left short-changed for up to a year.”
He adds: “By continuing to overtax people who use the pension freedoms as the government intended, HMRC risks pushing people into financial difficulty and forcing them into taking out more than they need to, potentially creating an extra tax liability as a result.”