Thousands of pensioners to get £10k payouts after tax mistake

Thousands of pensioners have received a payout after a tax mistake. The windfalls are as large as £10,000, with some even getting a refund worth more than £100,000. The compensation has been paid after people were overcharged following the roll out of pension freedoms, which were activated 10 years ago in 2015. These gave people aged over 55 a variety of options as to how to use their defined contribution (DC) pension pot. Generally, this meant people could take up to 25% of their pension as a tax-free lump sum, with the remaining three-quarters taxed as income.

But an "emergency" rate was applied to pension withdrawals, as the Government assumed that it would be the individual's monthly income for the rest of the tax year. This resulted in the possibility that people could be overcharged after making one-off withdrawals. Now, HMRC data, acquired by Royal London using a freedom of information (FOI) request, have suggested that there has been an increase in the number of refunds claimed in 2023-24.

Approximately 60,000 pensioners claimed refunds during the tax year, which represented a 20% increase on the around 50,000 the previous year, Royal London's data showed, according to the MailOnline.

Around 11,700 people received at least £5,000, including 2,400 who were given payments of more than £10,000.

Claimants got £3,342 - £280 (9%) more than 2022-23.

The largest 25 refunds were £106,900 on average, according to the figures.

Martin Lewis's website Money Saving Expert said last year that Brits be due a refund from HMRC if they are over 55 and have taken a taxable lump sum from their pension for the first time, or withdrawn their whole pension pot at once.

It added: "If you have been overcharged, you'll get the money you're due back automatically BUT not until the end of the tax year, which finishes on 5 April (either directly into your bank account or as a cheque)."

Readers were also advised: "This ONLY affects people withdrawing a taxable sum for the first time and NOT anyone accessing their 25% tax-free cash (you can take a quarter of your pension pot free of any tax) as the tax-free status simply means this is not an issue."

HMRC told the website in October: "Following the introduction of pension freedom in flexible pension payments in 2015, HMRC introduced a rapid refund process to enable those who had paid too much tax to reclaim and receive payment within 30 days.

"While HMRC keeps all areas of tax administration under review, there are currently no plans to change this process."