BRITS over the age of 55 could be up to owed up to £3,252 from the government.
That’s because people accessing their retirement savings from this age could be overpaying tax.
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People who access one-off lump sums from their pension are taxed as if that will be their monthly income – meaning they often pay far too much.
This applies to a workplace or personal pension, which is different to the government-paid state pension.
The latest official figures show that from July to September this year HMRC processed 18,851 tax refund claims.
The total amount repaid during the three month period was £61,305,602.
It means that on average the total payment was £3,252, but can be higher or lower depending on circumstances.
The amount repaid is £5million higher than in the previous three month period.
It’s also almost double the amount paid back in the same three month period 2022, which came in at £33.1million.
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.
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.
Ian Cook, chartered financial planner at Quilter, said: “HMRC has seen a significant 89% increase in the number of claim forms processed compared to Q3 2022, illustrating how many more people are turning to their pension pots to help them get by compared to last year.
“Unfortunately, those people are still stuck with an archaic system that over-taxes them and leaves them waiting for long period before they can access the full amount owed.”
He add that the figures “starkly” illustrate the pressure the cost of living crisis is placing on everyday finances, as more people are choosing to access their pension funds flexibly.
Flexible pension access lets you draw down a portion of your retirement savings – while leaving the rest to continue gaining interest.
Most people can take up to a quarter of their savings as a tax-free lump sum, but anything over that amount will be taxed.
If you withdraw a big amount as a one off, you would be put on an emergency tax code and be taxed as though that will be your regular income throughout the year.
For example, if you took £30,000 as taxable income, you could be taxed as if you were taking 12 times this amount – £360,000 – in the financial year.
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.
Meanwhile, Martin Lewis’ MSE has revealed how to track down lost cash with “little effort” after a woman reclaimed £13,500.
Plus, nearly half a million retirees will face a surprise tax bill because of a bumper state pension payment rise.
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