Thousands of retirees billed £ 10,000 for retirement withdrawals

Thousands of retirees have claimed more than £ 10,000 after being taxed on their retirement withdrawal, new analysis shows.

A number of people in the UK were given a refund worth more than £ 100,000.

HMRC figures, obtained by Royal London through the request of the Freedom of Information (FOI), showed an increase in the amount of return money claimed by 2023-24.

Retirement freedom, which came into force from 2015, gave more than 55 various options on how to use the specified contribution pension pot (DC).

In general, people can take up to 25 percent of their retirement as a tax -free lump sum, and the remaining 75 percent is taxed as income.

However, the “emergency” level is applied to retirement withdrawals, with HMRC with the assumption that will be a monthly retirement income for the remaining tax year.

This means that people can be excessively collected if they make a withdrawal once.

Around 60,000 Pension Savers claimed the refund in the 2023-24 tax year, 20 percent more than around 50,000 years earlier, Royal London data showed.

Around 11,700 retirees claim to be £ 5,000 or more, including 2,400 who were given a refund of more than £ 10,000.

The average refund worth £ 3,342, which is £ 280, or nine percent, more than 2022-23.

Returns of the top 25 of the average £ 106,900, according to data.

Clare Moffat, a retirement expert at Royal London, said: “It is truly extraordinary thinking that some people withdraw from their retirement for the first time have the right to return to emergency tax more than £ 100,000.

“Not only this tax usually comes as a large -magnitude shock, an unexpected amount of tax can also weaken the plan that is placed by people with care.

“The new HMRC announced the improvement of the emergency tax code on retirement, which was promised to provide faster refunds, but that does not mean people will not be charged higher rates in the first place.”

From April, HMRC changed the process so that the tax code was automatically updated for individuals who had just received personal pension.

Moffat said the government’s decision that the pension fund that was not used would be subject to inheritance tax from 2027 means “more and more people are considering dipping into their pension pots when they live” to make a big life prize for loved ones.

Retirement is currently freed from inheritance tax so that it is seen as a tax efficient way to continue wealth.

“The increase in Lump-sum withdrawal is likely to mean a larger surge in emergency tax for the withdrawal,” he said.

“So, the emergency tax problem will not be lost, and there is a possibility that it can be worse.”

Around £ 1.4 billion has been returned since 2015, the figures were revealed.

HMRC has been contacted to comment.

By Anna Wise, PA Business Reporter