New figures have revealed that around 60,000 people claimed a refund on emergency tax on pensions in 2023-24 - an increase of around 20% on the previous year.
The HMRC figures showed that some savers were overcharged more than £100,000.
Around 2,400 individual pension investors successfully claimed back more than £10,000 emergency tax on retirement income last year, according to the figures obtained by Royal London from an FOI request.
That was a year-on-year increase of 100 (4%).
Some 11,700 pension savers claimed back £5,000 or more in 2023-24, an increase of 2,000 (21%) on the previous year.
The average refund per saver was £3,342, up £280 (9%) on the previous year, with many pension savers often having to wait to get the money back. The top 25 refunds averaged £106,897.
Clare Moffat, pension expert at Royal London, said: “It’s incredible to think that some people withdrawing from their pension for the first time were entitled to emergency tax refunds in excess of £100,000. Not only do these taxes usually come as a massive shock, the unexpected tax amount can also scupper people’s carefully laid plans.”
She said the data relating to those who paid more than £100,000 in emergency taxes will likely have included some people looking to fund home purchases, either for themselves or for a loved one. She pointed out that to trigger a tax bill of that size, they will have made a withdrawal of more than £300,000.
Ms Moffat said: “HMRC recently announced an overhaul of its emergency taxing codes on pensions, which it promises will deliver quicker refunds, but that doesn’t mean people won’t still be charged the higher rate in the first place.
“In fact, the recent announcement by the government that pensions will soon be subject to inheritance tax may have the knock-on effect of triggering a surge in emergency taxes on pension withdrawals.”
To get the money back, retirees must complete one of three forms before waiting on a refund. Approximately, £1.4bn has been refunded since 2015.
If they don’t fill out the paperwork, retirees will need to wait on HMRC reviewing the payments at the end of the tax year. In the past, this meant many were left out of pocket for many months.