The typical payout is £3,338
HMRC knowledge reveals greater than £46m was repaid to savers within the last three months of 2025 (Picture: Getty)
Hundreds of pensioners are being handed again a median of £3,388 every after being wrongly taxed when dipping into their retirement pots, new figures reveal.
HMRC knowledge reveals greater than £46m was repaid to savers within the last three months of 2025, after they had been hit with shock tax payments on pension withdrawals.
Between October and December 2025, HMRC processed 13,652 reclaim types, with the typical refund coming in at nearly £3,400, in line with the newest Pension Schemes Publication.
Since pension freedoms had been launched in 2015, over £1.5bn has now been reclaimed by individuals who had been overtaxed after accessing their pensions.
The issue usually strikes these taking a lump sum from their pension for the primary time, who are sometimes taxed on a so-called ‘month one’ emergency foundation.
This assumes the identical quantity will probably be withdrawn each month, dramatically inflating the tax invoice and leaving many pensioners 1000’s of kilos out of pocket.
Tom Selby, director of public coverage at AJ Bell, stated: “There seems to be no signal of a retreat within the variety of pension overtaxation claims processed by HMRC, with over £46 million added within the last quarter of final yr to the £1.5 billion complete paid out to Brits since 2015.
“It’s now over a decade since pension freedoms and versatile pension withdrawals had been launched and HMRC remains to be but to handle one of many enduring flaws in its method to taxing those that select to flexibly entry their pension pots.
“On account of this complicated method, many are compelled to take issues into their very own fingers to be reunited with their hard-earned cash.
“However these figures are prone to solely barely scratch the floor, as they solely seize those that fill within the related HMRC reclaim kind. In actuality, many will probably be reliant on HMRC placing their affairs so as after the top of the tax yr.”
HMRC has made some modifications for folks taking common drawdown revenue. From April 2025, taxpayers are moved off emergency codes extra rapidly, lowering the quantity overpaid.
However Mr Selby warned this affords no safety to these making a one-off withdrawal. He stated: “That doesn’t assist these taking a one-off withdrawal, who will proceed to be overtaxed.
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“A technique savers planning to take a single withdrawal in a tax yr can probably keep away from the shock of an enormous overtaxation invoice is by taking a notional withdrawal first. This could imply HMRC is ready to apply the proper tax code to the second, bigger withdrawal. Alternatively, you’ll be able to fill out considered one of three HMRC types and it’s best to obtain your tax again inside 30 days.”
If no declare is made, HMRC says it’ll mechanically appropriate the tax place on the finish of the tax yr – although critics warn this may take months. Mr Selby added that pension savers could face but extra forms beneath the Authorities’s proposed modifications to inheritance tax on pensions from April 2027.
“As soon as the convoluted course of proposed by authorities is carried out in April 2027, some beneficiaries could discover they overpay revenue tax within the course of and might want to declare a refund, heaping but extra fiddly admin on taxpayers.”
Helen Morrissey, head of retirement evaluation at Hargreaves Lansdown, stated the overpayment of tax on pension withdrawals is “a protracted working saga that may catch folks unawares”.
She warned the influence will be extreme, saying: “This may end up in a far larger tax invoice, which may come as a nasty shock and will have a large influence in your plans.”
Whereas refunds will be claimed, she stated the method is much from painless.
“You possibly can fill out a kind and ship to HMRC, or you’ll be able to wait till the top of the tax yr, nevertheless it’s an admin headache and a excessive value to pay when it comes to time, annoyance and paperwork for accessing your individual cash.”
P55 – when you’ve solely taken a part of your pension pot
Failing to take action means ready till the top of the tax yr for HMRC to place issues proper.
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