Pensioners – chase HMRC for tax refunds after average sum reclaimed hit £2,881 | Personal Finance | Finance

Thousands of pensioners are paying more tax than necessary when they access their pension savings, and the scale of the problem is hard to ignore. Between January and March this year alone, HMRC refunded £44million to people who had been overtaxed on their pension withdrawals. The average refund was £2,881, and since 2015, pensioners have reclaimed more than £1.4billion.

The main issue is how HMRC taxes flexible pension withdrawals. Since the 2015 pension freedoms reforms, people aged 55 and over can take out as much as they like, when they like. But HMRC’s systems often apply an emergency tax code to the first withdrawal each tax year, assuming it will be repeated monthly. This leads to many people paying too much tax upfront, especially if they are only taking a one-off lump sum.

There have been improvements. In April, HMRC said it updated its tax codes process to move people from an emergency code to paying the right tax more quickly. However, those making a single, one-off withdrawal are still likely to be overtaxed.

But there is a practical workaround for those looking to dip into their pots. By making a small withdrawal first, sometimes as little as £1, HMRC is prompted to update your tax code.

When you then take a larger sum, you are more likely to be taxed correctly. However, pension providers may set a minimum withdrawal amount, so it’s worth checking with them first.

If you have already been overtaxed, you can reclaim the money by filling in the right HMRC form. The form you need depends on your circumstances.

Tax experts at AJ Bell said these include: a P53Z if you’ve emptied your pot and are still working or on benefits; a P50Z if you’ve emptied your pot and aren’t working or on benefits; or a P55 if you’ve only taken part of your pot.

HMRC says refunds are usually processed within 30 days. If you don’t claim, you will be refunded automatically at the end of the tax year, but this can mean waiting months for your money.

While the system is improving, it still pays to be proactive. A little planning can help you avoid unnecessary tax bills and the hassle of reclaiming your own money.

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Have you received a text or email about the Government’s winter fuel payment in recent weeks? If so, chances are it was a scam. New data from the tax office shows a staggering 15,100 reports of scams linked to this benefit in June alone.

Last month, HMRC acted swiftly to remove as many as 4,600 fake websites. With scams on the rise, HMRC has been ramping up calls to ensure everyone is on high alert for dodgy communications and to report any suspicious phone calls, emails, or texts through GOV.UK.

Remember, HMRC will never contact you by text to claim winter fuel payments or ask for personal information. If you’re eligible for a winter fuel payment, you’ll receive it automatically later this year, with no need to make a claim.

Last year, winter fuel payments were linked to pension credit, as the Government argued this would help balance a “black hole” in public finances.

But in June, the Chancellor announced nine million pensioners would receive the payment this winter. Pensioners in England and Wales with an income of £35,000 or less per year will benefit.

Those with a total income over £35,000 will still receive the payment, but HMRC will reclaim it through pay-as-you-earn or self-assessment, depending on how you pay tax.

For pensioner couples, it’s currently understood that the tax clawback only applies to the person with an income over £35,000.

For example, if a household receives £300, and one partner earns above the threshold, only their £150 share will be reclaimed through tax – the other partner keeps their share if their income is below the limit.

Scammers are getting more sophisticated, so it’s more important than ever to stay vigilant and be aware of the rules. Don’t let yourself get caught out, and if in doubt, check using the GOV.UK website.