The latest figures from HM Revenue & Customs (HMRC) show that more than £38 million has been paid to people aged over-55 who were taxed too much when accessing their pension pots.
According to HMRC, more than 18,000 tax repayment claim forms were sent in to them during the third quarter of this year, including P55s, which relate to general repayment claims, P53Zs, which are for people in serious ill health and P50Zs, for those who have stopped work altogether.
Since the introduction of pension freedoms in 2015, more than 160,000 claims have been made.
The new system has enabled anyone aged 55 or over to access their pension pot and take as much money from it in a lump sum as they wish, without paying any tax on the first 25 per cent.
However, HMRC’s figures suggest that many of the withdrawals are likely to have been taxed too much, and industry bodies have criticised the system saying that it “does not work”.
As one commentator pointed out, people who access their pension for a specific purpose, such as paying off debt or funding care for an elderly relative, could be presented with a financial challenge, if they receive potentially thousands of pounds less than they expect. Adding to this stress, to claim owed money back, people have to use an outdated system of filling out forms.
Moreover, he added that the Government cannot simply ignore the problem and needs to seriously consider whether the current approach is the right one, since it appears to unfairly punish savers who access their retirement fund.