Thousands of pensioners may be owed tax refunds after being overcharged when accessing their retirement savings, new figures from HMRC suggest.
More than £46.2million was returned to pensioners who had paid too much tax on their pension withdrawals in the final three months of 2025.
HMRC processed 13,652 reclaim forms between October and December, with the average refund standing at £3,388 per person.
The figures, published in HMRC’s Pension Schemes Newsletter 177, bring the total amount repaid since the introduction of pension freedoms in 2015 to more than £1.5 billion.
The issue continues to affect savers who take money from their pension flexibly, with many being taxed too heavily at source and left out of pocket until they successfully reclaim the overpayment.
Tom Selby, director of public policy at AJ Bell, said: “There appears to be no sign of a retreat in the number of pension overtaxation claims processed by HMRC, with over £46million added in the final quarter of last year to the £1.5 billion total paid out to Brits since 2015.”
He added: “As a result of this confusing approach, many are forced to take matters into their own hands to be reunited with their hard-earned money.”
The figures are likely to show only part of the picture, as they include only those pensioners who actively completed the required HMRC reclaim forms.
Many others instead wait for HMRC to automatically correct the overpayment at the end of the tax year, a process that can leave them without access to their money for several months.
The issue stems from the way tax is applied when someone makes their first withdrawal from a pension pot. In these cases, HMRC uses what is known as a ‘month one’ tax code, which assumes the same amount will be taken out every month for the rest of the year.
The issue stems from the way tax is applied when someone makes their first withdrawal from a pension pot
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AJBELL analysis of HMRC data
As a result, pensioners can be hit with unexpectedly high tax bills, leaving many shocked by how much is initially deducted from their retirement income.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “It’s a long running saga that can catch people unawares. The latest data shows over 13,000 forms requesting a refund were processed between 1 October and 31 December alone, with more than £46m repaid during that time.”
She described the situation as “an admin headache and a high price to pay in terms of time, annoyance and paperwork for accessing your own money.”
Despite pension freedoms having been in place for more than a decade, HMRC has yet to resolve this fundamental flaw in its taxation approach for those accessing their retirement savings flexibly.
Pensioners can be hit with unexpectedly high tax bill
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GETTYMr Selby noted that some progress has been made for certain savers, explaining: “From April 2025, the government improved its tax code process so people are moved from an emergency code to paying the right amount of tax more quickly. But that doesn’t help those taking a one-off withdrawal, who will continue to be overtaxed.”
One way to reduce the risk of being overtaxed is to make a small initial withdrawal first, which can prompt HMRC to apply the correct tax code before any larger amounts are taken.
Anyone who has paid too much tax can usually reclaim the money within 30 days by submitting the relevant HMRC form, although the correct form depends on individual circumstances.
How to get your money back if you are overtaxed
If someone takes a regular income through pension drawdown, they usually do not need to take any action, as HMRC should adjust their tax code over the course of the year to ensure the correct amount of tax is paid.
The correct form depends on how the pension pot has been accessed
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GETTYHowever, if a single lump sum is withdrawn, the individual will either need to complete one of three HMRC forms or wait for HMRC to correct their tax position at the end of the tax year.
The correct form depends on how the pension pot has been accessed:
- If the pension pot has been fully withdrawn and the individual is still working or receiving benefits, form P53Z should be completed.
- If the pension pot has been fully withdrawn and the individual is not working or receiving benefits, form P50Z should be used.
- If only part of the pension pot has been accessed, form P55 should be completed.
HMRC says that provided the correct form is submitted, any overpaid tax should be refunded within 30 days.
Ms Morrissey said making a modest first withdrawal could help reduce the impact of overtaxation, particularly for those planning to take larger lump sums to cover specific costs such as holidays or travel.
