HM Revenue & Customs returned more than £56mn in overpaid tax to savers who accessed their pensions during the second quarter of 2024.
The tax authority said that between April and June it had processed 16,079 pension flexibility claims forms and repaid £56.9mn to people who had been charged emergency tax when they withdrew money from their pension pot.
According to AJ Bell almost £1.3bn has now been reclaimed by people overtaxed on pension withdrawals since pension freedoms were introduced in April 2015.
Tom Selby, director of public policy at the platform provider, said: “HMRC’s outdated approach to the taxation of flexible pension withdrawals continues to hit hard-working savers, with the latest official figures revealing almost £1.3bn has now been repaid to savers who were overtaxed on their first withdrawal and filled out the relevant HMRC form to claim their money back.
“Worryingly, the average reclaim per person spiked to £3,540 during the latest quarter, the third highest three-month figure on record.”
Under the pension freedom rules, people aged 55 or more can freely access their cash. But any withdrawals above the 25 per cent tax free amount are taxable at an individual's marginal rate of income tax.
Where the provider does not have the correct tax code for the individual - which is in most cases - withdrawals are taxed using a higher rate emergency tax code, which routinely results in an excessive tax deduction that has to be reclaimed later.
The tax can be refunded either at the end of the tax year or by filling out one of three forms - P55, P53Z and P50Z - which allow people to claim back money mid-way through the tax-year.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “More than nine years after pension freedoms it is inconceivable to think that people are still being overtaxed on their first pension withdrawals.
“Almost £57mn has been overpaid in the most recent quarter alone. Many of these people will not have been expecting this, and will have had a nasty shock when their tax bill was way higher than expected. This can cause them huge problems: a tax nightmare is not the way to start your retirement.
“Of course you can get a refund, but this is a complication many people do not need and it’s a situation that should have been resolved years ago.”
amy.austin@ft.com
