Under the pension freedom rules, introduced in 2015, anyone over the age of 55 is able to withdraw as much cash as they like, whenever they like, from their retirement savings.
In the last three months of 2020, nearly £26million was reclaimed from HMRC in pension savings however, many savers are unaware that they may have overpaid pension tax. During 2020, a collective £125million was overpaid in pension tax with some savers being overcharged £3,213.
If an overpayment has been made, an official reclaim form can be filled out and a refund will be given within 30 days. However, for those unaware that they have overpaid they must wait until HMRC automatically reviews tax liability and assigns the correct tax code. This can take 12 months or in some instances longer, for the money to be returned.
During 2020, over 600,000 people accessed their pension savings for the first time however, only 38,000 official reclaim forms were submitted to HMRC. This suggests that many people are unaware that they may have overpaid on pension tax and will be left out of pocket until HMRC refunds them.
Pension savers must fill out one of three tax forms – P55, P53Z and P50Z, depending on whether they are withdrawing their full pension or not.
For those who are withdrawing partial amounts from their savings, the P55 form must be filled out. If the entire cash amount is being withdrawn then either the P53Z form must be filled out, for those still receiving income, or P50Z for those who have stopped working.