£56 million overpaid in pension tax

In the second quarter of 2023, pension tax overpayment refunds in the UK reached £56 million.

This was an increase of nearly £8 million from the first quarter of the year, according to HM Revenue & Customs (HMRC).

This figure is almost double the £33.7 million collected in the same period the previous year.

During this quarter, approximately 16,000 reclaim forms were processed, with an average reclaim amounting to £3,551. This is the second-highest figure since the introduction of pension freedoms in 2015.

Over the past eight years, people aged 55 and over who have paid too much tax on lump sum pension withdrawals have reclaimed almost £1.1 billion.

The need for taxpayers to reclaim overpayments has arisen because people making withdrawals from their pension pots are typically charged too much tax, due to the way in which the PAYE scheme operates.

The figures suggest that an increasing number of over-55s are accessing their pension pots, with some commentators suggesting that this is a result of the cost-of-living crisis.

For those considering accessing their pension funds, it is worth speaking to a tax adviser first. It may be better for smaller monthly withdrawals to be made rather than a lump sum to be taken, as this may reduce the tax deducted at source.

If you are concerned that you may have paid too much tax on pension withdrawals in the past, please get in touch.