HMRC promises to refund overpaid tax... but cannot say when

or a P45 from the current tax year, from the employer you retired from, you don’t have to do anything.

Mr Mohamed said: “Completing a P55 form for each withdrawal is frustrating. It’s archaic. In effect it’s a mini-tax return and many people will never have filled one out.

“The system is unfair on people who save diligently for their pension.” The tax office promises to refund any overpaid tax within 30 days if the correct claim is submitted.

A spokesman added that in cases where taxpayers submit the wrong form or don’t realise they need to make a claim, they will eventually be refunded. However, he could not say how long this would take.

AJ Bell, the investment platform, has calculated the discrepancy between how much tax someone should pay and how much could be taken if an emergency code is used instead.

For simplicity, the entitlement to 25pc tax-free cash has been ignored. The figures assume no other income is received.

A single £10,000 withdrawal should be tax-free, because of the £11,500 personal allowance, but could be charged £3,057.

Likewise, a £40,000 lump sum should attract a £5,698 tax bill but might face a charge nearly three times as high, at £16,385.

Tom Selby, an analyst at the firm, said: “HMRC’s insistence that an emergency tax code must be applied to pension freedom withdrawals means tens of thousands of people will have paid too much tax on their withdrawals – yet very few of them have reclaimed this tax.

“This might be because they don’t know they have paid too much tax, or because the process to reclaim it just seemed too complicated.

“Whatever the reason, there is likely to be millions of pounds sat with HMRC that could be legitimately reclaimed.”

Baroness Ros Altmann, the former pensions minister, said it was unlikely HMRC would change its stance as it would amount to “turkeys voting for Christmas”.

She said: “It is incredibly complicated and HMRC is making it as difficult as possible.

She added that the tax office benefits from savers leaving other refunds unclaimed.

“Many higher-rate taxpayers don’t realise they can claim extra tax relief on their pension contributions and millions goes unclaimed each year,” she said.

A spokesman for HMRC said: “Claimants presenting their 2017/18 P45s to their pension providers will pay the correct tax. In the event that they don’t, any discrepancy will be settled within 30 days of HMRC being notified.”