How to claw back tax overpaid when opting for pension drawdown

Many retirees opting for drawdown schemes – taking money out of their pension savings – have overpaid tax. Here’s what to do to get it back.

Tax rebate receipt © Getty Images
Refunds reached record levels in the second quarter of 2020
(Image credit: © Getty Images)

Savers received record average tax refunds of £3,560 each in the second quarter of 2020 after being overtaxed on withdrawals from their pensions. Total refunds since the pension freedom reforms of 2015 have now reached £627m.

The issue affects many savers opting to use drawdown schemes to access their pension funds on reaching retirement, rather than converting savings to income by buying an annuity. While savers may take the first 25% of their money tax-free, withdrawals above this amount are taxable at their marginal rate of income tax.

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David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.