Thousands of pension savers have received tax refunds after paying too much tax when accessing their retirement savings. HMRC has returned more than £50 million in just three months, with some people reclaiming thousands of pounds.
Thousands of Pension Savers Received Tax Refunds
New figures from HM Revenue and Customs (HMRC) show that more than 12,500 people received pension tax refunds between April and June after being overtaxed when making flexible pension withdrawals.
In total, HMRC repaid more than £50 million during the three-month period. The average refund was close to £4,000 per person, highlighting the scale of the overpayments made by some retirees.
The latest figures show that while slightly fewer refund claims were submitted than during the same period last year, the total amount repaid increased by around £2 million. The repayments relate to people who accessed their pensions flexibly and paid more tax than was ultimately due.
Why Pension Tax Overpayments Happen
Many pension savers are overtaxed because emergency tax codes are often applied when they make their first flexible pension withdrawal. These temporary tax codes assume the withdrawal will be repeated every month, which can result in significantly more tax being deducted than necessary.
Once HMRC receives updated information about a person’s actual income, the correct amount of tax can be calculated and any overpayment refunded. Retirement specialists have long argued that the current system creates unnecessary delays for pension savers waiting to recover their own money.
How to Check If You’re Due a Refund
People who believe they have paid too much tax after accessing their pension do not always need to wait until the end of the tax year to receive a refund. HMRC allows eligible individuals to apply for a repayment by completing one of three forms available on the UK Government website.
Those who have emptied their pension pot and are still working or receiving benefits should complete form P53Z. People who have emptied their pension and are no longer working or claiming benefits should use form P50Z. Anyone who has only withdrawn part of their pension should complete form P55.
HMRC says it aims to process refund claims within 30 days of receiving the relevant information.
Taking Smaller Withdrawals May Reduce Emergency Tax
Financial experts say one way to reduce the likelihood of being placed on an emergency tax code is to avoid withdrawing large lump sums where possible. Instead, taking smaller withdrawals over time may help ensure tax is calculated more accurately from the outset.
Adam Cole, Retirement Specialist at Quilter, said to The Sun that average refund of nearly £4,000 is a substantial amount and argued that pension savers should not have to wait to recover money that was overpaid through the tax system.
Anyone planning to access their pension may wish to review the tax implications beforehand and check whether they qualify for a refund if too much tax has already been deducted.
