More than £33m in overpaid tax refunded to pension savers

New figures reveal that in the past three months HMRC has repaid more than £33m in overpaid income tax to almost 10 000 people who made ‘flexible’ withdrawals from their pensions. This brings the cumulative figure to £925m since the introduction of pension freedoms in 2015.

Under current HMRC practice when an individual first takes a lump sum from a defined contribution pension tax is deducted at source. But instead of being deducted at the individual’s normal income tax rate HMRC uses an emergency tax code in case the individual makes multiple withdrawals over the year taking them into higher tax bands. Individuals then have to fill in one of three different forms to reclaim the overpaid tax.

However according to consultancy firm LCP £925m is likely to be an understatement of the full scale of the problem. Some people may not...