Interactive Investor

I took a pension withdrawal and paid tax when I shouldn’t have

18th July 2018 09:52

Helen Morrissey from interactive investor


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“I claimed 25% of a private pension back in 2015 and expected it to be tax-free. However, I ended up paying tax on it. I’ve found out that the pension provider made the payment via the uncrystallised route and not the drawdown route, hence paying the tax.It has only recently come to my attention that tax was paid. I’ve been told to contact the pension provider, but would I be better writing to HMRC and requesting a refund?”

From: VC/via email


As it currently stands, there are two options available to people looking to take ad hoc withdrawals from their pension pot. These are called flexi-access drawdown and uncrystallised funds pension lump sum (UFPLS).

In the case of flexi-access drawdown, you can take out your 25% tax-free cash in one go, with all subsequent withdrawals taxed. With UFPLS, any withdrawals will be treated as 25% tax-free, with the remaining 75% being taxable. It sounds as if you intended to go down the flexi-access drawdown route, but instead have gone down the UFPLS route.

This is not an issue for HMRC, as it has taken the correct amount of tax for someone making a lump sum withdrawal. It is more an issue for the product provider.

You do not say if you have a financial adviser, but if you do, you should ask them to speak to the provider. If you don’t have a financial adviser, make a complaint directly to the provider and explain that you have been set up with a UFPLS when you wanted flexi-access drawdown.

If the provider does not help you, then you should approach the Pensions Ombudsman’s early resolution service, which will help you with your complaint (ring 0800 917 4487 or email

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£300 million overpaid in pension tax

Our reader VC above isn’t the only person who has accidentally overpaid tax on their pension withdrawals. Pension provider Royal London has revealed that over the past three years £300 million was overpaid in tax by pensioners.

In the first quarter of 2018, £22 million was refunded by HMRC when too much tax was collected in error from withdrawals. “These quarterly figures are a regular reminder of the absurd way in which pension withdrawals are taxed,” says Steve Webb, director of policy at Royal London.

This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

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