HM Revenue and Customs has revealed that it repaid £37m between 1 July and 30 September 2017 to individuals that were overtaxed on their pension freedom withdrawals.

According to HMRC’s third quarter figures, the body processed 16,168 forms and repaid £36,875,395 of overpaid tax.

A total of £262m has now been repaid to pension savers that were charged with emergency tax since the freedom and choice reform was introduced two years ago. These figures, however, are in relation to those who have filled out the official forms, therefore the exact number is likely to be higher.

In addition, HMRC highlighted that in the period between 6 April 2017 and 30 September 2017, it received 1,169 applications to register new pension schemes, 17 per cent less than the same period in 2016. From these, 60 per cent were registered, 13 per cent of schemes were rejected and no decision has currently been made on the remainder.

AJ Bell, senior analyst Tom Selby said: “While hundreds of millions of pounds has been successfully reclaimed by individuals overtaxed on pension freedoms withdrawals, this could be the tip of the iceberg. Many of those affected – particularly basic rate taxpayers and people who don’t take advice - will have little or no experience dealing with tax matters and might not even know the reclaim forms exist.

“As a result they could end up getting thousands of pounds less than they thought they would when they made the withdrawals.

“The government needs to urgently review this policy – it is manifestly unfair to lumber savers who are using the freedoms in the way the government intended with whopping great tax bills.”

Hargreaves Lansdown head of policy Tom McPhail added: “The average tax reclaim in the past quarter is just under £2,300, with around eight per cent of those who took a flexible payment from their pension making a reclaim. In theory HMRC processes mean even if you don’t fill in the form and immediately reclaim overpaid tax, you should eventually get the money back. The problem is HMRC isn’t infallible: if you don’t take the initiative and ask for the money back, you risk missing out; at best you’ll miss out on the use of the money for up to a year.

“This is a clumsy system, which is certainly not designed with the best interests of the investor at its heart. HMRC and pension providers should be able to request the appropriate tax code in advance of making any payment, the technology is there to do this kind of thing.”

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