HMRC issues 'tax nightmare' warning for every pensioner in the UK

HMRC has refunded an eye-watering £57 million due to a pension tax error. In the period from April 1 to June 30, pensioners received back a total of £56,925,219, as reported by Pension Flexibility, with experts cautioning those saving for retirement.

Helen Morrissey, pension specialist at Hargreaves Lansdown, told Birmingham Live: "More than nine years after pension freedoms, it is inconceivable to think that people are still being overtaxed on their first pension withdrawals.

"Almost £57 million has been overpaid in the most recent quarter alone. Many of these people will not have been expecting this and will have had a nasty shock when their tax bill was way higher than expected. This can cause them huge problems: a tax nightmare is not the way to start your retirement."

She added: "Of course, you can get a refund either by waiting until the end of the tax year or filling in one of a number of forms known as the P55, P53Z or P50Z."

Morrissey further advised: "But this is a complication many people do not need and it's a situation that should have been resolved years ago. The reason for the overtaxing is that you can be put on an emergency rate of tax whereby HMRC treats it as though that first payment will be repeated every month.

"You can try to mitigate this by making your first pension withdrawal a small one if possible," she suggested. "If you do get caught out, be sure to take swift action by filling out a form and getting your money back as soon as possible."

A spokesperson for HMRC said: "Nobody overpays tax as a result of taking advantage of pension flexibility. We will repay anyone who pays too much because they're on an emergency tax code. Individuals can claim back any overpayment earlier if they wish."