Figures released by HMRC show that pension savers were refunded £56,243,842 in overpaid tax during the second quarter of 2023 alone.
The HMRC tax overpayment statistics on flexible pension withdrawals showed they increased £8m compared to the first three months of 2023 and doubled the £33.7m collected in the same period last year.
Jon Greer, head of retirement Policy at Quilter said: "There has been a significant increase in the number of claim forms processed, illustrating just how many people are turning to their pension pots to help them get by as the cost-of-living crisis intensifies.
"However, despite it being a time when people need swift access to their money more than ever, those hoping to use their funds are faced with a system that causes prolonged waiting periods before they can receive the full amount."
Pension tax refunds
“In Q2, the average tax refund per saver was £3,551 as a result of the incorrect amount of tax being charged from pension income. 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. For those in this position, it could be worth speaking to a professional financial planner who can help reduce the risk of paying excessive upfront taxes, such as by making multiple smaller pension withdrawals as opposed to taking a single lump sum. This can ensure that most of the withdrawal utilises an updated tax code, preventing emergency taxation on the full amount.
“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.”
