Recent statistics suggest that many pensioners may have been overtaxed on their pension withdrawals. Claimants are being encouraged to check whether they are entitled to a tax refund from HM Revenue and Customs (HMRC).
HMRC Pension Withdrawals and Tax Implications
From the age of 55, people can start accessing their workplace or personal pension. As a general rule, the first 25% of the pension can be withdrawn tax-free.
Any remainder is taxed at the standard rate of income tax. However, people who choose to withdraw large lump sums may be subject to a higher rate of ’emergency’ income tax.
As a result, retirees are seeing substantial amounts deducted from their payments, temporarily depriving them of some of their income. According to new HMRC data, more than £42 million was refunded in overpaid pension tax in the first quarter of 2024.
Each pensioner on average received £3,167, although actual refund amounts vary depending on individual circumstances. During the first three months of the year, more than 13,000 claims were processed.
Financial experts believe that these levels of extra cost are still ‘incredibly high’. Therefore, it is essential that pensioners check whether they are eligible for a refund.
Considering the scale of the amounts involved, this could provide significant financial relief, especially at a time of inflation and rising living costs.
“The system is desperately in need of an overhaul as currently the process leaves people facing unexpected emergency taxes and adds additional pressure during a time many continue struggling with inflation.” Ian Cooke, Chartered Financial Planner at Quilter Financial Services
How to Claim Your Refund
To claim a refund, you need to fill in a specific form provided by HMRC if you have withdrawn a large amount from your pension fund. Although you can wait for HMRC to review your tax code at the end of the tax year, this can mean a long wait for your refund.
You can, however, fill in one of the following three forms to speed up the process:
- P55
- P53Z
- P50Z
These forms can be downloaded from the HMRC website.
Remember that the refund request procedure is simple and can be carried out quickly. Don’t miss your chance to get back what is rightfully yours.
Mr Cooke explained: ‘This ensures that the majority of the withdrawal uses an up-to-date tax code, avoiding emergency taxation on the entire amount.
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