BRITS over 55 could have to pay up to £3,252 to the government. This is because people accessing their retirement savings from this age may be paying too much tax.
People who receive a lump sum from their pension are taxed as if it were their monthly income – meaning they often end up paying too much. This applies to occupational pensions or personal pensions, as opposed to public pensions paid by the state.
Latest official figures show that between July and September this year, HMRC processed 18,851 tax refund claims. The total amount repaid during the three-month period was £61,305,602.
This means the average total payment is £3,252, but could be higher or lower depending on the circumstances.
Refunds are £5m higher than three months ago. This is also almost double the amount repaid in the same three-month period in 2022, which was £33.1 million.
You can start receiving money from your personal or professional pension at age 55 in a variety of ways, including in the form of capital.
You can usually take the first 25% of your pension tax-free and anything above that will be taxed.
But when you take a lump sum, you could be taxed at emergency rates and end up paying more than you owe.
You can apply for a tax refund yourself if you don't want to wait, otherwise you will get a refund at the end of the tax year.
The exact amount you can get back if you overpay depends on how much you took out of your pension, other income (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 allows you to withdraw part of your pension savings, while letting the rest continue to earn interest.
Most people can withdraw up to a quarter of their savings as a tax-free lump sum, but anything above this amount will be taxed.
If you withdraw a large amount at once, you will be subject to the emergency tax code and will be taxed as if it were your regular income throughout the year.
For example, if you take taxable income of £30,000, you could be taxed as if you received 12 times that amount - £360,000 - in the financial year.
How do I get a tax refund?
You may be able to get a refund if you have recently withdrawn money from your pension.
If this is the first time you have withdrawn money from your pension fund and you have taken more than 25% then it is likely that HMRC owes you money.
You can claim a refund from HMRC via an online form or by a paper form sent by post.
Completing the form will depend on how you access your pension..
If you have withdrawn your entire pension and stopped working, you must fill in form P50Z.
Those who are still working but have exhausted their pension must return form P53Z.
But if you've just removed a section, you need to submit form P55.
It may take up to six weeks for your money to be returned.
The Department for Work and Pensions (DWP) recently wrote to two thousand Britons 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.