Recent figures from HM Revenue and Customs (HMRC) reveal the tax authority returned £48.7 million to Brits who were overcharged on pension withdrawal tax between April and June of last year.

Retirement specialist Helen Morrissey noted the statistics suggest approximately 13,000 refund applications were handled during this period, with the typical refund amounting to roughly £3,800.

Ms Morrissey highlighted that Brits taking a lump sum from their pension for the first time can face excessive taxation. The primary cause is HMRC‘s system incorrectly assuming the identical sum will be taken out each month, potentially resulting in an unforeseen tax charge.

The head of retirement analysis at Hargreaves Lansdown points out the funds can be recovered from HMRC, though it may prove to be an ‘admin headache’.

Ms Morrissey said: “The overpaid pension tax saga continues to drag on. In just three months, HMRC has repaid a whopping £48.7m to people who paid too much tax for simply accessing their pension. With an average refund of around £3,800, these refunds amount to a significant chunk of change.

“The problem hits people who are taking a lump sum from their pension for the first time. They get taxed on what is known as a ‘month 1’ basis, which means it’s treated as though the same amount will come out every month.”, reports the Daily Record.

“This results in a far bigger tax bill, which can come as an unpleasant surprise or even de-rail people’s retirement plans.”

She continued: “The money can be reclaimed. HMRC processed close to 13,000 forms between the beginning of April and the end of June, but it’s an admin headache that people can well do without.

“Ten years on from the advent of Freedom and Choice it’s a process that should have been consigned to history.”

Ms Morrissey also outlined how to sidestep an unforeseen tax charge. She explained: “There are things you can do to mitigate it. For instance, you could make your first pension withdrawal a relatively small one.

“However, if you were looking to take a lump sum to fund travel or home renovations, for instance, you will need to plan ahead to make sure the money you take isn’t whittled away by tax which could delay your plans.

“If you do get clobbered with a big tax bill, then you will need to fill out one of three forms so that HMRC can process the refund. Otherwise, you can wait until the end of the tax year.”