THOUSANDS of retirees could be owed money from HMRC based on new figures.
That’s because anyone accessing their retirement savings over the age of 55 could be overpaying tax.
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People who take one-off lump sums from their workplace or personal pension are taxed as if that will be their monthly income.
This often results in people paying far too much tax than they should.
New tax figures from HMRC show that it processed around 16,000 tax refund claims worth £56million in total in the last three months.
That works out as £3,550 each on average, but can be higher or lower depending on circumstances.
You can start taking money from a personal or workplace pension from the age of 55 in a number of ways, including as a lump sum.
Usually, you can take the first 25% of your pension tax-free, and anything over that is taxed.
But when taking a lump sum, you can be taxed at an emergency rate and end up paying more than you have to.
You can make a repayment claim yourself if you don’t want to wait, otherwise, you’ll get it back at the end of the tax year.
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The exact amount you can get back if you overpay depends on how much money you took from your pension, what other income you have (if any) and your tax rate.
John Greer, head of retirement policy at Quilter, said: “This emergency tax situation can be particularly frustrating for people trying to access their funds quickly.
“It arises due to an oddity within the PAYE system when people start to take money from their pension as they are not taxed using the correct tax code.
“The cost-of-living crisis is putting real pressure on everyday finances and people may be considering accessing their pension flexibly as a result.
“The system is in real need of an overhaul, as the current process is leaving an increasing number of people facing emergency tax at a time they need their money most.”
How do I get a tax refund?
You could be owed a refund if you’ve taken a lump sum out of your pension recently.
If it was the first time you’ve drawn down cash from your pension pot and if you took more than 25%, it is likely that HMRC owes you money.
You can claim your cash back from HMRC via a form either online or with a paper one sent by post.
The form you need to fill in will depend on how you accessed your pension.
If you have withdrawn all of your pension, and you’ve stopped working, you should fill in a P50Z form.
People who are still working but have emptied their pension pot should return a P53Z form.
But if you’ve just taken out a chunk, you need to submit a P55 form.
It could take up to six weeks for your money to be returned.
The Department for Work and Pensions (DWP) has recently written to two thousand Brits inviting them to claim Pension Credit.
And earlier this month a huge update was issued to thousands of women affected by state pension payment errors.
We also recently issued a warning on the “zombie” charges hitting pension pots.
